Late payment threatens to 'undermine economic recovery', IoD warns

Will Green is news editor of Supply Management
20 January 2015

The 'unfair' issue of late payment was discussed at a meeting of MPs organised by the Federation of Small Businesses (FSB) today as it seeks to “toughen up” the Prompt Payment Code.

The cross party parliamentary roundtable, organised by the FSB and the All-Party Parliamentary Group for Small Business, aims to “identify possible solutions to the deterioration of payment practices in the UK”.

The move comes after Heinz declined to comment on reports it had extended payment terms for suppliers from 45 to 97 days. Brewer AB InBev has been criticised by a supplier for 120-day payment terms. In response the firm said: “We work hard to build sustainable partnerships with our suppliers and have many long-standing relationships which have helped those companies through what has been a challenging economic environment. We would always encourage suppliers who are in difficulty to contact us directly.”

Mike Cherry, FSB national policy chairman, said: “It is simply unacceptable for any company to exploit its market position to enforce unfair and unreasonable payment terms. The money outstanding in late payments is in the billions and has consistently grown larger and larger.

“We need greater leadership from all parties competing to be in the next government to toughen up the prompt payment code and improve the UK’s payment culture.”

Debbie Abrahams, a Labour MP who is hosting the event, said making unilateral changes to contracts was “as unethical as tax evasion” and it was necessary to “shift the burden of having to take legal action away from the victims of late payment practices once and for all”.

“It’s simply a case of big businesses using smaller businesses as a credit line by applying bullying tactics that are unfair and have the knock-on effect of stifling growth in the economy,” she said.

Meanwhile, the Institute of Directors (IoD) has said late payment is damaging SMEs and “undermines the strength of the economic recovery”.

Research by the IoD in December showed two-thirds of its SME members suffered late payment and one in eight said a company had changed payment terms on them.

James Sproule, IoD chief economist, said: “If large businesses continue to behave in this way, they are inviting regulation.”

Debt Guard Solicitors has called for a scheme of compulsory daily interest charges on businesses that pay late, unless they opt out and risk public criticism.

Mark Burgess, Debt Guard’s CEO, said: “To combat what is an entrenched late payment culture damaging SMEs cash flow, tougher legislative action is required.

“For instance, the existing statutory right to charge late payment interest does not go far enough and should be replaced by a more robust opt-out system instead.”

The Small Business, Enterprise and Employment Bill, which includes clauses on tackling late payment, is currently passing through Parliament.

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