Late Payment of Debts

A survey carried out by the Federation of Small Businesses (FSB) has revealed that more than half of its members who contract with larger private sector businesses were paid late during the last 12 months.  This is despite the fact that as long ago as 1998 legislation was introduced under the Late Payment of Commercial Debts (Interest) Act to combat this problem. 

This Act introduced a system whereby interest could be charged on debts as well as compensation payments which depended upon the value of the debt.  This legislation recognised that considerable problems were caused to businesses by persistent late payers but it is clear from the results of this survey that this legislation and the Government's Prompt Payment Code have not had the desired effect.

In the current climate all businesses, no matter how big or small, want to be paid as quickly as possible and in turn want to hang onto their own money for as long as possible and the reality is that those businesses who are best able to achieve these two objectives are the bigger businesses who smaller businesses cannot afford to upset because they may simply stop dealing with them.

The EU directive which was enacted in Spring 2013 said that only in exceptional circumstances should payment terms be more than 60 days but anyone who is in business will know that the bargaining power in deciding such matters is invariably  with the purchaser rather than the supplier! Even if terms for payment are agreed at a shorter period, the reality is that if payment is not made on time a supplier has only a limited number of options.  They can make a complaint and to seek to recover interest and compensation costs or issue proceedings.  In either case the supplier will often be aware that there are other businesses who will be only too happy to step in and pick up their work and rightly feel that such action will result in a loss of business.  The FSB is urging the Government to strengthen the Prompt Payment Code to make it compulsory for the largest businesses to set out their payment terms and to pay quickly as well as making them more accountable if they breach those terms. 

I hope that the Government will take these complaints on board because cash flow is the life blood of small business. Time and again I see businesses fail because of either delays in payment or of a complete failure to make a payment and it is well known that if one business fails the knock on effect can mean the failure of other businesses with whom they deal.