The UK government review into late payments will see action taken to extend reporting on payment practices. In addition, it will broaden the powers of the small business commissioner, increase active and visible enforcement or payment reporting and exclude suppliers with poor payment times. This is something welcomed by the Federation of Small Businesses.
In addition, the government proposes to introduce reporting on retention payments for businesses in the construction sector. It will also make it easier for external commentators to analyse the data by sector. And it plans to improve overall rates of compliance with reporting requirements through increased enforcement activity.
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Payment and cash flow review report: industry comments
Stephen Carter, Director of Payments Strategy, Ivalua
“The government’s proposed changes will provide much-needed support for suppliers. But this is just one step to addressing a larger issue. Late payments cost UK businesses
£27bn a year, stalling cash flow and stifling innovation. Organisations must take ownership of this problem and proactively address late payments. Paying suppliers late can lead to production delays, supply disruptions and damaged relationships. In extreme cases, late payments can put suppliers out of business. The Federation of Small Businesses claims 50,000 UK business closures could be avoided each year if they were paid on time.
“By paying late an organisation breaks the bond of trust that is critical in any relationship. The focus should be on paying at the right time for both parties. This could be early payment to strengthen the supply chain or on a key milestone to reduce risk. Paying late is a symptom of an organisation having no control over their critical spend cycle.”
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By GlobalDataAnthony Venus, Chief strategy and Product Officer, Quadient AR by Yaypay
The lopsided balance of power
“Ultimately, the Prompt Payment Code is about addressing the lopsided balance of power that can exist between businesses. In light of this review, it’s good to see the government putting some of its own weight on the scales by excluding suppliers with poor payment times from bidding for large contracts. Increased visibility, education and collaboration are all good signs, but ultimately legislation needs both the carrot and the stick to succeed.
It’s now up to businesses to follow the code and improve their payment processes. If they can’t, further action might be needed. Whether that’s the stick of legislating overdue fees into all contracts, or the carrot of tax incentives on automation innovations on top of emphasising the benefits of digital invoicing to speed up the entire payments cycle. Time will tell how successful the new code is, but ideally it will drive a sea change for SMEs.”
