Research on Payment Culture is the April 2012 report on a survey conducted by Graydon, a prominent credit management firm, and the Forum of Private Businesses. The research drew on a number of sources, including a recent e-survey of small businesses, which received 498 usable responses.
A Significant Problem for Many Small Businesses
The report deduces that, out of the 1.2 million SMEs in the UK, around 266,000 find that late payment is a major problem: 124,100 nearly went bust; 209,000 have watched their profits plummet; and many have not been able to recruit more staff and make investments in growth.
Late payments by customers lead to late payments to suppliers and the spiral continues. A massive number of 244,000 businesses have been unable to pay their creditors on time because they haven’t been paid on time by their own customers.
The Worst Offenders
Subcontractors reported that later payments from contractors frequently coincided with the dates when VAT and PAYE payments were due, so while these were given priority by the contractors, it became more and more difficult for those down the pecking line to meet their own tax obligations. Construction seems to be the hardest hit sector, but no one is exempt. Those in most difficulty seem to be companies with between 10 and 49 employees.
Many of the late payers are the major companies for which cashflow is not such an extreme problem as it often is for their small business suppliers. While most offenders are from the private sector, some of them are public sector organisations.
Ongoing Issue for the Government
The findings have been passed to government with various recommendations, one of which is that contractors for government contracts should be obliged to sign up to the Prompt Payment Code of the Institute of Credit Management. This difficult issue is not new to Parliament, as a debate on the subject was instituted by MP, Debbie Abrahams, in September 2011, when she realised how many of the small businesses in her constituency were suffering or actually going to the wall.
In response to the publication of Research on Payment Culture, Business Minister Mark Prisk said, ‘We need practical, business-focused solutions to help SMEs in particular and make sure they are paid promptly. Legislation alone cannot do enough to enforce prompt payment of suppliers.
Are you Affected?
If your cashflow is suffering from late payments, there may be actions you can take to get people to pay more quickly and avoid the problem cropping up so much in the future. Talk to your outsourced bookkeepers to see what they recommend.