Home Business News Changes to late payments step in the right direction

Changes to late payments step in the right direction

by LLB political Reporter
17th Oct 20 10:49 am

Under new proposals being drawn up by the government, large British companies could now face fines or court orders if they fail to pay their smaller suppliers on time. However, according to Know-it, a leading cloud-based credit management platform, while the changes are welcome and will provide the small and medium-sized enterprise (SME) sector with some much-needed support, more is needed to unravel the culture of late payments across the supply chain.

The new proposals would see the Small Business Commissioner (SBC) having the authority to order companies to pay their suppliers, either as a lump sum or agreed payment plan, when a complaint against them for late payment has been investigated and eventually upheld. The goal is to help put small businesses in the situation they would have been in had they been paid the full amount on time, while the companies that failed to comply would now face further penalties and fines.  

The SBC would also have the power to compel companies to share information during any investigation, as well as launch investigations into suspected bad payment practice, without receiving a complaint from a small business.

Lynne Darcey Quigley, Founder & CEO of Know-it said, “Late payments – an issue which has been exasperated further by the pandemic – have been damaging business cash flow, hampering growth, stunting investment and risking business solvency for many years now. Back in 2018, even before recent the Covid-19 outbreak, the average late payment was 12 days behind schedule, and in 2019 that increased to 23 days. This has served put a particular strain on the SME sector, which accounts for 80% of total GDP, and they have been the first to feel the effects of the substantial deterioration in the average payment performance of larger companies during the pandemic.

“The changes announced by the government are clearly a step in the right direction to tackling this issue, but more must be done for the sector moving forward. There is only a small window where small suppliers can get paid and, particularly in the current climate, they simply just want to see the money in their pockets on time. Can a small business really wait for a penalty to get charged? Can they wait for an investigation to start? But the question that really needs to be raised: will these new measures help payment come in anymore quickly?”

According to the Federation of Small Businesses (FSB), around 50,000 small companies close each year due to late payments, while 62% have experienced late payment at some point or other. In a 2016 report, the FSB also estimated that if all payments were made on time there would be a £2.5bn boost to the British economy. 

Lynne added, “Even after Covid-19, the problem of late payments and its devastating impact on SMEs isn’t going anywhere. Yet, there is still time to give these businesses the tools and support they need. Throughout the pandemic we have learned that, with the help of technology, we can do things electronically and more efficiently than before. This is why we believe there is an opening for technology to help SMEs streamline their credit control processes so they can credit check and monitor, chase for payment and collect overdue unpaid invoices, all from one place.

“By using technology to automate the credit control process, small business owners, who do not necessarily have the resources available to continuously check it, chase it and collect it, can remove the headache of manual processing, saving time, reducing debtor days and increasing cash flow. Although much of the onus will also be on larger companies to improve their payment practices, there is room for technology to make a huge difference for SMEs and ensure payments are made on time.”

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