Will regulation force businesses to name & shame themselves for late payments?
The Government continue to acknowledge the devastating impact late payments have on SME’s in their Spring Statement:
Philip Hammond said “I announced a year ago that we would take definitive action to tackle the scourge of late payments for our small businesses. A full response to last year’s call for evidence will be published shortly, but I can announce today that as a first step we will require company Audit Committees to review payment practices, and report on them in their Annual Accounts. We will announce further details in due course. “
This seems to be the Government’s grand idea to make larger companies more self accounting. By having them publish the typical time taken to pay suppliers. Also requiring them to employ a non-executive director to be responsible for this and to hold them to account.
Is this another government white elephant initiative just in time for the launch of Dumbo in the cinemas or will it really help tackle late payments?
Late payments continue to negatively impact small enterprises in the U.K. The Chancellor of the Exchequer has stated that larger firms should have a director in place to help reduce delays. Elsewhere, late payments impact contractors focused on emergency repairs in the U.S. Virgin Islands after the 2017 hurricanes.
Any company dealing with the larger UK companies know they often dictate their own payment terms. So what’s to stop the firm simply extending the payment terms. As long as they adhere to the extended terms, then will they be deemed as late ?
Also how effective is a non executive director going to want to be in holding the company to account that is paying their wages ?
Another challenge is whether the larger companies will adhere to the request, or will it be another ‘toothless tiger’, akin to the Government’s voluntary Prompt Payment Code?
Recent surveys by the BACS payment scheme showed the direct cost of late payments to small businesses is currently valued at around £2 billion. With the FSB have commenting that a typical SME is owed on average £6,142. It is estimated that as many as 50,000 firms go out of business each year because of problems related to late payment.
What can you do?
It’s not enough to allow the larger businesses to regulate themselves, it is imperative that all SME’s manage their exposure and risk in a prompt and pro-active manner.
Where possible invoice little and often.
Not only does this remove the spectre of having your cash flow tied up in one big invoice, should a smaller invoice be paid late, it alerts you to the payment practices of the customer and allows you to react to same for the future.
Be proactive and not reactive.
Have a set, robust credit control procedure that ensures that you are pursuing invoices as and when they become due (and before if possible). The sooner you are aware of a late payment, the quicker you can resolve same for the sake of your business and your sanity.