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Is this finally the late payment solution that SMEs need?

Naming and shaming persistent offenders has long been mooted as a possible means of tackling late payment, and it is finally happening. Some big firms have been exposed. But will it work and rid the SME sector of this debilitating problem?

The much-discussed public identification of companies that repeatedly pay invoices late has always been considered something of a last resort, largely because of the threat such a step could pose to business relationships. That is until now. Sentiment surrounding late payment is shifting.

According to new tougher government guidelines, 17 companies, including Rolls-Royce, Balfour Beatty, DHL, Twining and Company, Persimmon and Vodafone, have been removed or suspended from the Prompt Payment Code for repeatedly paying suppliers late. The Code requires signatories to pay 95% of all supplier invoices within 60 days. The announcement was accompanied by some strong words from the Chartered Institute of Credit Management, which enforces the terms of the Code, and the Minister of Small Business.

The development is a positive step for SMEs but small businesses owners are unlikely to be cartwheeling down their office corridors just yet. Many consider the Prompt Payment Code a busted flush – despite much rhetoric surrounding its purpose, it has categorically failed to achieve its goal. The recent introduction of stiffer terms may yet help salvage the initiative’s reputation, but understandably, small businesses can be forgiven for viewing recent developments with a degree of skepticism.

And furthermore, late payment remains a significant drain on the small business sector. The FT has recently reported that late payments kill an estimated 50,000 small businesses a year. Its choice of language is noticeable. The newspaper also quoted figures from the Federation of Small Businesses that claim late payment costs the UK economy £2.5 billion a year.

Separately, according to the Chartered Institute of Procurement and Supply, and its latest analysis of government data, over 1,000 businesses are flouting the law by failing to report how long they take to pay suppliers.

So, is naming and shaming of persistent late payers the answer to the late payment problem?

Yes and no. It’s a step in the right direction but, on its own, its impact is likely to be limited, in the short term at least. As a small business, it is arguably better to view it as an additional layer of defence. Owners are no doubt pleased to see more affirmative action, but will surely want to rely on a more pro-active, multi-faceted approach to safeguarding themselves from the practice.

One of the elements of this defence should be an awareness of alternative finance, in particular invoice finance.

The use of invoice finance is a proven means of reducing delays in payment and safeguarding the cashflow that is a company’s lifeblood. Data from Optimum Finance show that in some cases the use of invoice finance resulted in a near 60% decrease in the time taken for invoices to be paid.

Alternative finance is reshaping the small business funding landscape and invoice finance is playing a pivotal role in this reordering, not least because of its ability to help small businesses combat late payment.

It is encouraging that the government is finally taking a tougher stance towards companies that repeatedly fail to pay invoices on time, but small business owners shouldn’t rely on this initiative alone – they need to be aware of all the options available to them, including invoice finance.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.

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