Under the new proposals, companies signing up to the Prompt Payment Code will have to agree to pay their suppliers on time. In addition, the time frame for companies to pay each other has been halved from 60 days to 30 days. Also, business owners, Finance Directors and CEOs will be required to take personal responsibility by signing the Code. They will also have to agree that interest on late payments can be applied and that non-payment breaches will be investigated.
“All these recommendations are welcome,” says Luisa Grey, Eazipay’s Director, adding: “The problem is that membership of the Prompt Payment Code is voluntary and there are too few companies signing up to it. The Prompt Payment Code has around 3,000 members - nowhere near enough to impact on the £23.4 billion that companies owe each other. Industry figures suggest here are around 6 million small businesses in the UK.
“So long as membership of the Code is voluntary and membership numbers remain modest, the impact on the UKs late payment culture will be severely limited.
“Set these proposals against the number of business that are driven into insolvency by late payments – some 50,000 a year and you will begin to appreciate the scale of the problem,” says Luisa.
One encouraging sign that the government is, at last, reacting to the scourge of late payments is the announcement that the Prompt Payment Code now comes under the control of the office of the Small Business Commissioner, the body set up to help business to be paid on time.
New powers for the Small Business Commissioner are also on the table and include legally binding payment orders, launching investigations and levying fines on firms that pay late.
“When companies are starved of the money they are owed, it has an immediate impact on them in terms of their ability to pay bills, staff and suppliers. Investment is put on hold and perfectly viable, profitable companies face business closure,” says Luisa, adding:
“We welcome any proposal to reduce the blight that being paid late inflicts on small businesses and the two new announcements, that the Prompt Payment Code is being beefed up together with it coming under the remit of the Small Business Commissioner are positive steps in the right direction. But there is still more work to be do if the small business sector is to feel fully supported.”