Govt consults on late payments, considers issuing penalties

The CBI has today welcomed the Government’s decision to tackle late payments made by businesses to suppliers, considered by some a more important business issue than better lending conditions.

Prime Minister David Cameron announced the Government is considering imposing strict penalties on businesses that did not make prompt payments to suppliers.

Katja Hall, the CBI’s policy director, said: “Late payment is a serious issue for all businesses but particularly for smaller firms, as cash flow is their life blood.

“Businesses already have a number of routes for recourse if they are paid late, but the reality is that few choose to act on late payment for fear of fall out with their customers.”

In some sectors, late payments can be crippling for SMEs, where prime contractors have gone out to 90-day and 120-day terms.

The Financial Times has reported that in April, the average small business was owed £31,000 in overdue payments, amounting to £30.2bn across the economy.

Part of the Government’s proposed crackdown on late payments will involve discussions with businesses to decide whether more responsibility should be placed in the hands of senior management, or if the current payment code should be more strongly enforced and its penalties increased.

“The CBI backs the Prompt Payment Code, but there are also other ways of addressing late payment – for example some suppliers will choose to work with customers through supply chain finance agreements,” Mrs Hall said.

While business lobbying groups like the CBI have acknowledged that the late payment culture has a huge negative effect on cash flow and business competitiveness, they have been largely ineffective in taking action to improve payments. This is because many of their biggest members, the prime contractors at the top of supply chains, are the worst perpetrators of paying late.

One multinational, diversified industrial company with UK operations in 2013 adjusted its payment terms to 120-days as standard for suppliers in the aerospace sector.