Business Funding, Easy As 1, 2, 3.

See if you're eligible for a loan, it only takes 30 seconds...

Step 1

1. Your Business (10 seconds)

Step 2

2. Monthly Sales (10 seconds)

Step 3

3. About You (10 seconds)

Privacy Notice

Download our funding guide

Get tips and inspiration on how to grow your business...

Finance & cash flow

Late Payment Is Unfair, And Damaging To SMEs. Can The Law Help?

By March 9, 2015 No Comments
Late Payment Is Unfair, And Damaging To SMEs. Can The Law Help?

Late PaymentsWhen we ask the small firms we work with about their most persistent problems, many still put late payment very near the top of the list. It’s a subject we’ve talked about on this blog before, but it just doesn’t go away. And if recent research is to be believed, it could be getting worse.

  • SMEs are owed £39.4 billion in unpaid bills, at an average of £38,200 each, according to the Department for Business, Innovation & Skills (BIS).
  • Three out of four UK firms are waiting at least a month beyond their payment terms before receiving funds owed to them, payment service Bacs calculates.
  • One in five company directors has cut their own pay in order to cover the shortfall.
  • One in ten says that unpaid invoices are causing them difficulty in paying staff, or covering bills, while about a quarter are late paying their own suppliers because of the financial hardship caused.
  • In about half of business failures, late payment has played a major part, the insolvency practitioners’ body R3.

Politicians tackling late payment

With such stark evidence, the powers that be could hardly fail to be aware of the enormity of the problem, and the Government recently launched a consultation into how late payment might be addressed. This investigation into practical measures to improve payment practices closed on March 9, having sought the opinions of business groups, and small business owners themselves. While politicians maintain they’ve already made moves to address the issue, clearly more needs to be done.

About £8.2 billion worth of additional costs are shouldered by SMEs in Britain every year directly due to late payment, Bacs says, with time and admin spent chasing outstanding invoices equating to real money. It’s a huge and ruinous sum, and one suggestion is the law should do more to punish organisations that pay late. So, are things going to change, and what is the recent talking shop likely to achieve for small enterprises in reality?

Consultation questions

Other European countries have enshrined the EU Late Payment Directive in law, whereas the UK has opted for a voluntary system, encouraging bigger businesses to sign up for a Prompt Payment Code, which requires members to pay their bills within 60 days. Small business groups point out that too many big businesses pay lip service to the code, but continue to be tardy in payment practice. However, don’t expect the current softly-softly approach to change any time soon, since BIS maintains those that took part in the consultation shunned the idea of a tougher process set in law, and instead favoured greater transparency.

In particular, the consultation hopes to define more clearly what ‘grossly unfair’ payment terms are. It’s believed that if firms have a better definition of what is and isn’t acceptable, they’ll be better placed to raise complaints, and challenge late payment offenders. The discussions also addressed whether business representative bodies, such as the Federation of Small Businesses (FSB) or the Forum of Private Business, should have greater powers to take on late-paying larger firms on behalf of their members – either case by case or collectively.

Hope for change

The Government has threatened to name and shame participating big businesses that don’t abide by the terms of the Prompt Payment Code. It has said it will enforce the register more rigorously, and strike offenders off altogether if they flout rules. There are measures in the Small Business, Enterprise and Employment Bill to require large corporate businesses to publish their payment terms and practices – a move, if it were to happen, that has the potential to make a great deal of difference, given the reputational issues that would be at stake.

But, overall, though it’s very welcome that late payment is being discussed, business groups are less than optimistic that real change will come about for Britain’s short-changed SMEs. Recently, John Allan, national chairman of the FSB, called for an independent inquiry into supply chain bullying, and nefarious payment practices by big business.

He said: “It (the inquiry) must be independently led, and produce clear recommendations in time for the next Government to act early in the next Parliament. We have already fed back to Government on this issue in numerous consultations, but without any significant progress yet in tackling the underlying causes of our poor payment culture. For payment culture to improve, we need fresh thinking and bold steps to be taken.”

In the meantime, businesses must do all they can themselves to prevent falling foul of late payment in the first place. Use the most up-to-date technology to speed up processes, agree on clear payment policies before doing business with someone, and do charge interest on outstanding sums when money’s owed – the Government offers guidance on how firms can do this. Unpaid invoices aren’t going away in a hurry, so it’s up to each SME to be cautious, and shore up its own defences in order to avoid the curse of late payment.

Image courtesy of pong /

Speak to a member of our business loans team on 0800 138 9080

More businesses than ever before are looking to Boost Capital for their business financing needs. To learn more about how our UK small business loans work or to explore the business financing options that are available to you, contact us today!
Apply Now