A survey by MarketInvoice on 80,000 invoices from UK businesses revealed that 62% were paid late in 2017, up from 60% in 2016. On average, SMEs are paid 18 days late, with £21.1 billion outstanding in late payments annually.
Enter the duty to report on payment practices and performance legislation. This is in effect an extension of the Prompt Payment Code, which was established in 2008 and under which many large companies were already voluntarily publishing their payment policies online and following standards for payment practice.
The new legislation, however, means that all companies over a specified threshold (turnover, balance sheet total, number of employees) need to report on their payment record. The Government is taking further action to support SMEs with a new complaint service on late payment and the newly appointed Small Business Commissioner.
Are things looking up?
So, are we seeing real, tangible results?
“Whilst the regulations came into force in April last year, the reporting obligation is linked to each company’s financial year, so not every company within scope was required to take action immediately. It’s also not entirely clear that every company with a duty to report is fully aware of that fact, as I wouldn’t say the regulations have been particularly widely publicised,” says Oliver Kidd, Senior Associate, Stevens & Bolton.
The recent collapse of Carillion highlights the size of the task at hand. The company’s Supplier Payment Guide says that it is “committed to paying our suppliers in accordance with agreed payment terms. In order to avoid unnecessary delays and any processing difficulties, it is essential that processes are followed and consideration should also given to some of the tools we have to help improve payment performance.”
There then, somewhat predictably, follows a long list of processes. Rumours had been swirling for some time that Carillion was a late payer of bills. Worse still, creditors of the company could now end up with less than a penny in the pound, official court documents revealed.
A High Court witness statement submitted by the interim Chief Executive, Keith Cochrane, on the company’s liquidation notes the “insolvency recovery for creditors in the event of a group-wide liquidation would be an average of between 0.8p in the pound and 6.6p in the pound”.
Federation of Small Businesses National Chairman Mike Cherry, said: “It is vital that Carillion’s small business suppliers are paid what they are owed, or some of those firms could themselves be put in jeopardy, putting even more jobs at risk besides those of Carillion’s own employees.”
He added that these unpaid bills may well go back several months. “I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid. Sadly, these kind of poor payment practices are all too common among some big corporates. Perhaps if they weren’t it would be easier to spot the warning signs of a huge company in financial trouble.”
What are the public findings so far?
5 practical steps for fast payment