Octempo:RM News


Late payment still hitting SMEs

21 September 2009

Late payment still hitting SMEs

Cash flow worries due to increasing late payments are causing small businesses the most headaches, according to a survey by the Forum of Private Business (FPB).

The trade body’s latest Economic Downturn Panel survey shows that almost a quarter of respondents, 23 per cent, selected late payment and, subsequently, poor cash flow as their key issue. This was more than those who voted for a lack of sales – 20 per cent – and 11 per cent who said compliance with health and safety regulations.

Even declining bank lending was deemed to be less of a concern than poor payments. The FPB said the banks’ "tardy" decision making was chosen as the major issue by six per cent of respondents and the steep cost of bank lending, which was voted for by four per cent.

In all, 42 per cent of FPB members who took part in the survey reported a deterioration in prompt payments from customers – typically bigger businesses – compared to just three per cent who said there had been an improvement. A total of 56 per cent said there had been no change from previous months.

Just five per cent of business owners surveyed in September said access to finance has Improved, while more than four times as many, 22 per cent, said it has deteriorated. The remainder reported no change. No one saw an improvement in the terms and conditions of loans, while 17 per cent said they have declined and 83 per cent that there has been no change.

Phil Orford, chief executive of the FPB, said: "Small firms’ cash flow is being decimated by credit restrictions and declining trade. Our research suggests that poor payment, which has always been a problem, is now threatening the very survival of many businesses.

"We want the UK’s biggest companies to take the lead and pledge to pay their suppliers on time by signing up to the code in order to set in motion a consensus of prompt payment through the supply chain."

Already, under the Late Payment of Commercial Debts (Interest) Act 1998 (LPCD), small businesses have a statutory right to interest (SRI), meaning they can in theory charge for late payments. But the FPB said few take advantage of this or are prepared to speak out publicly out of fears that large companies will simply take their business elsewhere.

In addition, many larger companies impose unilateral changes on their smaller suppliers' terms and conditions, often mid-contract and with little warning, effectively sidestepping the redress provided by the late payment legislation.

Stuart Blake, adviser on late payment for the FPB, said: "Suppliers receiving underpayment on deliveries made under contracts agreed before the date of any letter notifying them of a change in terms and conditions should know they are automatically be entitled to interest under the terms of their original contracts or under the LPCD(I) Act.

"What is more, if their entitlement stems from the LPCD(I) Act, they will be entitled to a late payment penalty charge as well, assuming their contract postdates August 2002."

Blake added: "Suppliers should be careful about fulfilling orders received after this letter was sent, since to do so may indicate acquiescence, and therefore acceptance, of the new terms the letter seeks to impose."

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