Tackling the late payment ‘scourge’
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March’s Spring Statement was slightly surreal in the way it was overshadowed by three days of frantic voting around Brexit. What would usually be the main event metamorphosed, in these unprecedented times, into a peculiar sideshow.
It’s ironic, then, that millions of UK SMEs had a spring in their step as the Chancellor sat down at the end of his speech. The reason for this was Mr Hammond’s commitment to address the pressing issue of late payments.
Tackling the “late payments scourge”
We are still waiting on all the finer details from Greg Clark, the Business Secretary, and these should emerge in the days ahead.
But in the meantime, to tackle “the scourge of late payments”, the Chancellor said that, “as a first step, we will require company Audit Committees to review payment practices, and report on them in their Annual Accounts.”
This might not sound much, but it essentially means the Government is going to make late payments a corporate governance and board room issue rather than a finance issue.
It’s a new type of increased transparency and accountability for those at the top of the supply chain that is long overdue. A real gamechanger.
Late payments by big business can have a toxic, often deadly, impact on UK SMEs. For starters, reduced cashflow can restrict a company’s ability to grow but it can also, in far more cases than many people are aware, put firms out of business.
Crippled by poor cash flow, companies can find it difficult to pay salaries, contractors, suppliers, rent and countless other bills (not least tax payments, which the Revenue are increasingly on top of).
And even those companies that somehow manage to absorb payments that are systematically late will often be forced to go into their overdrafts, which comes at a price, or to look at other measures to boost cash flow, such as loans.
Many companies, unfortunately, simply reach breaking point and are forced to pull down the shutters. In fact, it’s estimated that tens of thousands of companies go bust each year due to late payments alone.
One big issue SMEs have to deal with is how assertive they are in chasing their invoices. After all, being overly assertive with their big clients can have a real commercial risk — and sour an otherwise lucrative and long-term commercial contract and relationship. Because of this many smaller firms decide to put up with the status quo, which simply shouldn’t be the case.
Thankfully, it looks like we’ll soon be entering a new era of accountability, one where big firms that play hard and fast with their smaller suppliers will be held to account in full public view.
It’s a day that many in the SME community have both lobbied and prayed for, and it’s a day that is hopefully not far off.
But in the meantime, any firms struggling with late payers can always speak to a platform like CODE that can find ways to resolve their cash flow problems, potentially through low cost unsecured loans (many of which are now available up to £5m).
What’s most important is that companies don’t just stick their heads in the sand and hope the issue of serially late payments goes away.
Continued delays to Brexit, mean more months of uncertainty, but business is still doing well – at least for now.
Press release: CODE Investing’s latest hire is of Mark Aston as the new Director of Intermediaries and Business Development.
CODE Investing attended the Castle Water annual customer conference in Westminster.