Private sector urged to pay SMEs promptly

26 November 2009

26 November 2009 | Allie Anderson

Firms in the UK must follow the public sector's lead and commit to paying suppliers more quickly, a government minister has said.

Lord Davies, minister for trade, investment and small business, has challenged large, private sector companies to make better efforts to support SMEs through the economic downturn by ensuring they settle bills more quickly.

So far, only 22 of the FTSE 100 companies have signed up to the government's Prompt Payment Code (PPC) since its launch almost a year ago. Writing to the remaining FTSE100 firms Davies said: "Late payment creates uncertainty in the supply chain and carries a significant cost to UK business.

In 2009 it is anticipated that UK business will pay approximately £180 million in interest on overdue payments. That's £180 million of potential investment lost." UK government is taking steps to help small businesses.

According to the Department of Business Innovation and Skills, 95 per cent of central government invoices are now paid within 10 days, in line with measures introduced last year by business secretary Lord Mandelson to ease cash flow for small businesses.

Local government performance in the UK lags behind, with only 42 per cent of invoices settled within the 10-day target and average payment times at 18 days (Web news, 9 November). Suppliers can help by ensuring they invoice correctly and on time, said Davies.

"Visible leadership on prompt payment by government and our most influential companies is important to small business. Government is playing its part, but every part of the supply chain must help ensure prompt payment," he added in a statement.

His challenge to larger firms was laid down as figures released by information services firm Experian showed the late payment culture among UK businesses is improving.

On average, firms took 20.99 days beyond their agreed terms to pay their bills, compared with 21.54 days in September and 23.20 days in October last year.

For the second month running, the biggest month-on-month improvement in late payments came from the largest businesses (falling by 5 per cent to 23.41 days).

Overall, however, these firms still took the longest to pay their bills. Joe Myers, head of commercial credit at Experian's business information division, said: "As a whole, this is a potential sign of increasing confidence as companies feel less inclined to hoard cash.

But these are still early days and businesses need to be cautious and pay close attention to payment performance data."

Matthew Goodman, policy representative at the Forum of Private Business (FPB), said: "With FPB members in almost every level of the supply chain, we understand how vital it is that the message gets out about how paying late can harm struggling suppliers.

Keeping cash flowing is the biggest concern for many [SMEs] and, logically, best practice should start at the top of the supply chain."

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