Call for payment terms to be discussed up front

25 April 2012

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25 April 2012 | Adam Leach

Payment terms between buyers and suppliers should be discussed from the outset of negotiations, rather than being left until the last minute and treated as a formality.

By bringing the discussion forward in the contracting process, the two parties can mutually agree upon the best way to manage payments and tackle certain issues head on, according to a roundtable held yesterday.

Speaking during the discussion, Philip King, chief executive of the Institute of Credit Management, said: “All too often the credit piece comes in after the contracts have been drawn up and then there’s not a lot you can do to change it.”

He said businesses needed to identify the best payment process to fit their needs - whether they are shorter or longer terms - but that it must be discussed much earlier on. A potential benefit would be to give suppliers a chance to ask questions about the contractor’s payment process in order to be better prepared to work with the system.

Andrew van der Lem, deputy director with responsibility for SME finance at the Department for Business, Innovation and Skills, said the government can help by providing support to small businesses over what they can do to make the process run more smoothly, such as what systems or technologies are available. In addition, he said the government should lead by example and it is committed to paying its suppliers within five days of terms, as well as incentivising private companies to pay promptly.

The roundtable followed the launch of a report published yesterday by the Forum of Private Business and credit referencing agency Graydon, which found 51 per cent of small UK businesses cited late payment of invoices as a problem. Within the companies that identified it as an issue, 16 per cent said it had almost put them out of business and 23 per cent said it was a serious problem.

The study also found 56 per cent of companies that reported being paid late were forced to delay payment to their suppliers, thus creating a ‘domino effect’ of late payment through the supply chain.

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