IBE Briefing Finds Late Payments Still a Problem for SMEs

The UK government, which began 2013 by declaring that it was ‘going to war’ on the issue of late payments, has its progress scrutinised in a briefing issued by the Institute of Business Ethics (IBE).

The IBE reviews the issues involving supplier payments, governmental attempts to curb the problems and how companies are addressing the issue. Larger organisations may exert power over their smaller suppliers by paying late, demanding unreasonably long payment terms from the outset, or lengthening the terms part-way through the contract. These actions can result in small and medium-sized enterprises (SMEs) experiencing cash flow problems but “little room for bargaining through fear they will lose the business”. This is what makes such behaviour an ethical matter, the Institute comments.

According to Bacs Payment Schemes, the average UK SME was owed £31,000 in overdue payments as of April 2013, amounting to over £30bn across the UK economy and the average overdue payment was 38 days late.

Campaigners such as the UK’s Forum of Private Business (FPB) are concerned that there is a Europe-wide business culture of late payments that is damaging SMEs, the IBE notes. A UK government initiative was set up to change this and in 2012 business secretary Michael Fallon wrote to all FTSE 100 and FTSE 250-listed companies encouraging them to sign up to the voluntary Prompt Payment Code (PPC).

Signatories to the code commit to paying their suppliers within clearly defined terms, and also to ensuring there is a proper process for dealing with any issues that might arise. In January 2013, Fallon threatened to ‘name and shame’ those who refused to sign. However, by August this year although 72 companies from the FTSE 100 had signed only 71 from the FTSE 250 had done so. Additionally, the Federation of Small Businesses (FSB) has claimed that some signatories to the code have not changed their unfair behaviour.

Last month, British prime minister David Cameron announced a consultation aimed at helping SMEs to be paid on time and declared that “more needs to be done to build a business culture across all sectors of the economy that sees the fair, prompt and reliable payment of suppliers become a core corporate responsibility.” The consultation will consider appropriate penalties for late payments.

‘Supply Chain and Payment Practices’
is a free download from the IBE, available
here
.

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