UK councils could be facing up to £1bn in late payment penalties, according to a report into local government payment practices.
The report, Time for Change by Oxygen Finance, found while 90% of invoices issued to local councils were paid on time, the late payment liability for councils during 2015-16 reached into the hundreds of millions.
Late payments are when an invoice is paid after the period outlined in a commercial contract, which is typically defined as 30 days.
The report said as many as 4m invoices to the value of £7bn are paid late annually across local government, with every late invoice incurring a minimum late payment fee of £40 plus interest at 8%, equating to a collective payment liability of £160m.
However, it warned this figure was based on the minimum penalty so could actually be much higher.
Ben Jackson, CEO at Oxygen Finance, said because suppliers in England, Wales and Northern Ireland have a six-year window—five years in Scotland— to make a claim for late payment, total liability could be as high as £1bn.
“There is a perceived wisdom [among councils] that late payment legislation has no real teeth – since who will bite the hand that feeds them? – but it could really bite hard if suppliers start to systematically exercise their right for six years’ worth of late payments,” he said.
Of the 100 councils who provided data, 87% said they do not record the amount of late payment charges they would be liable to pay suppliers and of those that did, the average contingent liability equalled £442,000— rising to more than £3m in potential late payment fees for one council.
After examining the use digitisation in local government accounting systems, the report said e-invoicing was not being utilised by councils. Almost half of local authorities do not have an e-invoicing system in place and for those that did, it was only used to process 18% of received invoices.
Jackson said local authorities were clearly finding it hard to address the volume and scale of invoicing with limited resources.
“Local authorities are working hard to ensure they pay suppliers on time every time but they face a significant challenge due to scale of supply base, volume of invoices and legacy processes and systems that compete for investment,” he said.
“With increasing pressure on local authorities to do more for less, addressing this area has now come into sharp focus as a way in which councils can save money and support local business without impacting frontline services.”
☛ Want to stay up to date with the news? Sign up to our daily bulletin.