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What we're talking about...

The Issue Of Prompt Payment

Prompt Payment drives local growth especially for smaller business. However, poor payment terms starve growth and create uncertainty. 

Awareness of the Prompt Payment Code is high, with 74 per cent of Trading for Good members having heard of it. In general, 81 per cent of Trading for Good members reported experiencing difficulties being paid on time.

This mirrors a recent YouGov poll commissioned by Barclays Bank that found 85 per cent of SMEs have had problems with late payments in the last two years. A total of £30.2 billion is owed in late payments to SMEs this year alone, according to the Bankers' Automated Clearing Service.

According to BACS data, the average SME is owed £36,000 at any one time and waits on average 58 days to be paid. 

How can this problem be best tackled?

The government is set to consider whether to institute a new regime of fines for late paying companies. TFG asks why this is important

Announcing the launch of the consultation David Cameron admitted that the Prompt Payment Code had not achieved enough. “I am clear that more needs to be done,” he said. “It’s not right that suppliers are not getting paid on time for the work they do and the services they provide and I know that late payment can have devastating effects on our small and medium-sized businesses.”

Take a supermarket as an example. The customer takes the goods off the shelves and pays immediately. Cash flow to the big organization is assured. Why should a small producer wait more than a few days for payment?

Technology is such that payment systems and factoring should be able to make payments instantaneously.

The idea of financial penalties was floated by business secretary Vince Cable back in August, following the relative failure of the voluntary prompt payment code. 

The voluntary code should not have failed at a time when CEO’s are keen to promote themselves as responsible business leaders in the wake of various and spectacular failures on supply chain management.

But if voluntary sign up is not enough then we must demand greater oversight and responsibility in the boardroom with the CEO being given a report on payment records. This should be measured as part of a companies overall approach to Corporate Responsibility. Transparency naturally follows this approach. Companies should publish their record on payment time statistics. Name and be shamed.

The idea of financial penalties was floated by business secretary Vince Cable back in August, following the relative failure of the voluntary prompt payment code. The bigger businesses are starving growth by failing to well with smaller businesses.

The message to big business is simple: Cash is king especially for smaller businesses. Certainty of cash flow inspires confidence across a supply chain – confidence stimulates investment and creates jobs. Employment creates disposable income that stimulates growth.

All big businesses should make it their business to achieve timeliness and certainty in their payment process or be forced to do so.

Trading for Good is proactively tackling this issue with big business and striving to improve cash flow for it’s members.

Kay Allen
About the Author

Kay Allen

Kay is the Founding Director of 3 companies; Trading for Good, Really Useful Stuff and Diverse Advice - a CSR consulting firm. Previously a Non-Executive Director DWP Pension Disability and Carers Service, Kay is a well networked, high profile ambassador for equality and social action with a proven track record as an outstanding innovator in the private and public sector.

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