How late payment is impacting some local businesses - but could help be on the way?
PUBLISHED: 16:11 31 October 2018 | UPDATED: 16:11 31 October 2018
Cashflow is king – it’s a warning every business knows, and yet late payment is a damaging problem that the majority of businesses have come up against.
Peter McKenna Brady, the managing director of graphic design company Mutual Media UK, based in Ipswich, recalls the aggravation caused by late payments for a project he did for a large music company.
“It was a rush order placed by a senior staff member. I designed, printed and delivered well inside the scope we had to do the work.”
But six months later, Mr Brady says he still hadn’t been paid.
“Every time I called, I was told that I had to have a PO (purchase order). How was I supposed to know they won’t pay without a PO when it was my first job?
“Nine months, later I eventually got paid but I spent more in phone calls to get paid than the value in the job.”
New recommendations from the Association of Accounting Technicians (AAT), backed by leading backbenchers in a cross-party pressure group, are hoping to ease the late pay pain for businesses.
The AAT has recommended that the currently voluntary Prompt Payment Code, who compels signatories to pay on time and with good practice, be made compulsory to all businesses over 250 staff.
The AAT also suggests that the current legal payment terms should be halved from a maximum of 60 days to 30 days, and that a financial penalty scheme be put in place to apprehend consistently late payers, enforced by the Small Business Commissioner.
Andrew Mower, the Federation of Small Business’ development manager in East Anglia, said: “Poor payment practices are seen as the top business risk for many small suppliers and cause thousands of businesses to close every year.
“Our research has shown that around a third of payments to small businesses are late and that this resulted in cash flow difficulties for nearly one in four of these firms. The voluntary Prompt Payment Code is not working when it allows signatories to pay on terms of over 120 days, so we want to see a new tough and transparent compliance regime.”
Colin Low, a financial planner and managing director of Kingsfleet Wealth in Ipswich, said he finds the issue of withholding payment of invoices to be “deeply unethical.”
“An invoice is typically issued after receipt of good or service anyway so delay payment by any reasonable period is simply discourteous, irrespective of what impact it may have on the cashflow of the business. “It is a shame that this issue needs to be codified or legislated upon, but if that’s what is required to ensure that a just settlement is made in good time, then that can only be a good thing.”