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The UK has an unenviable reputation as a world leader for late payments. This is when businesses engage the services of other businesses but take an unreasonable long time to pay. Large firms use their financial muscle to impose excessively long payment terms on the smaller firms they contract to. This benefits the cashflow of the larger businesses at the expense of their smaller suppliers and causes problems for these SME’s who can be pushed into insolvency.
With the collapse of outsourcing giant Carillion still fresh in the minds of everyone, the Government has put forward proposals to force businesses to clean up their practices when it comes to payment terms and paying invoices on time.
Late Payment Culture and Insolvency
Carillion was a prime example of the worst aspects of late payment culture. A corporate giant which imposed payment terms of up to 120 days on its smaller suppliers and contracted companies. When Carillion collapsed, this left many small businesses up and down the country with little or no payment for up to three months of work they had already done. Work for which raw materials, time, and labour costs still had to be paid. Debts of around £2 Billion, owed to around 30,000 creditors have been reported.
Losing three months of revenue would be hard fora lot of businesses to cope with and many small and medium enterprises didn’t survive, following Carillion into insolvency and liquidation.
Proposals to Change Late Payment Culture
According to the Federation of Small Businesses, late payment could be responsible for the loss of up to 50,000 businesses every year.The Government has suggested a number of steps which might force medium and large businesses to treat the smaller enterprises they deal with more fairly.
Recommendations have included forcing all large and medium sized businesses to sign the ‘Prompt Payment Code’ – which is currently a voluntary commitment to pay 95% of invoices within 30 days.
Further proposals have been to refuse to award lucrative government contracts to any business which is unable to demonstrate that it has paid 95% of all invoices within 60 days for an extended period, unless it can explain why and show that they’re taking steps to remedy this.
This is likely to come as music to the ears of small businesses and contractorsas a positive step to ending the late payment culture and could come into force in Autumn, 2019.
Late Payment Culture and Cashflow
While these proposals look promising, Autumn, 2019 is a long way away and for many small businesses who are already dangerously close to insolvency, or already insolvent due to overdue invoices, practical insolvency advice is needed to help them survive.
If late payments are causing your business cashflow problems, contact Lines Henry to discuss your situation. We have a wealth of experience in helping small businesses just like yours to recover from insolvency and get their finances back on track.
We offer a free consultation too, so there’s no reason to delay.
Speak to us, we can help.