Are late payments eating into small business profitability? Yes, says latest data from FSB

Are late payments eating into small business profitability? Yes, says latest data from FSB

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Date10 Feb 2014
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Posted ByAdmin
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According to new data from Federation of Small Businesses (FSB), more than 5 in 10 small and medium enterprises (SMEs) were paid after the agreed date by large companies in 2013.

As a result, FSB has urged the government to bolster the Prompt Payment Code (PPC) which, if re-launched, would make it easier for SMEs in the UK to complain about late payments and change the culture among large firms who time and again pay late or try to extend their payment terms. Sometimes these payments are delayed by an unacceptable 120 days. The government established the code in 2008 to ensure small companies recover the £30.2 billion owed to them by some of the UK's largest companies.

Following a survey of more than 8000 SME member companies, the FSB informed the Business Department consultation that more than 51% of its members providing goods and services to large companies were paid late in 2013.

The national chairman of the FSB, John Allan, says, "As the economy gets stronger, we must do everything we can to help businesses, and late payment is an issue the government and large businesses must tackle.”

"Small businesses simply can't be expected to lend interest free to their large customers, which is in effect what extended payment terms and late payments results in. This is as much a policy issue as it is a cultural problem within UK business. Government needs to get its policy on this right but as the biggest buyer in the UK, it should also exemplify best practice in paying its suppliers in a timely manner,” he added.

Late payments or extended payment terms hurt an SME in many ways. For over 34% of FSB members, late payments led to reduced profitability. Around 32% felt that it stopped them from paying their own supplier on time and 29% felt that late payments hampered their business growth.

The FSB has called upon the government to re-launch the Prompt Payer Code (PPC) which should open a platform for small and medium businesses to complain about a firm it feels isn’t a prompt payer.

"Small firms need confidence to charge interest and complain about late payments. The fear among the smallest firms is that complaining about late payment should result is lost future work which will harm cash-flow for their business,” explains Allan.

"We have urged the Government to look at strengthening the Prompt Payment Code so it is mandatory for the largest businesses to spell out their payment terms, as well as agree to pay quickly, and for large businesses to take seriously their responsibility to pay on time. This, we believe, would mean few would look to change their terms and ask for discounts. Furthermore, by strengthening the complaints process more firms will look to stand up for themselves," he concluded.

In addition to strengthening the Prompt Payer Code, the FSB has suggested all signatories to clearly mention their maximum and average payment terms as well as a named contact for small businesses to deal with payment difficulties.