This isn't a clever initiative to improve cash flow; it's a crude, unethical breach of contract that can have a devastating impact on innocent parties and reverberate all along the supply chain. It doesn't matter how those that do it dress it up: it's just plain wrong.
Late payment is not new, but the problem has worsened since the financial crisis of 2008 and particularly affects small and medium sized firms. Between 2008 and 2012, the overall level of late payments due to these businesses almost doubled from £18.6 billion to £35.3bn. As of February 2013, the overall level of late payment owed to SMEs stood at £30.1bn.
It doesn't require a PhD in economics to appreciate the negative effect that this kind of culture has on UK GDP and, in particular, those companies that tend to be SMEs in the middle of the supply chain. That's why the BFPA, along with sister associations in the Engineering & Machinery Alliance, has been working to address the problem.
The government is introducing measures to encourage prompt payment by obliging bigger companies to publicly report their payment performance.
These measures formed an important part of the Small Business Enterprise and Employment Bill and government has said that it will consult with industry on the best way forward.
How these measures will be implemented is still under discussion and great care is being taken not to undo all the good work that has been done to reduce the regulatory and administrative burden on UK companies at all levels, but the culture has to change. The current view is that if large tier one companies can be encouraged to improve their performance through a mixture of 'carrot and stick' regulation, the improvement will ripple-down the supply chain and improve performance at all levels.
Other influential representative bodies such as the CBI recognise the importance of prompt payment and the crucial role that it plays in enabling SME manufacturing companies manage their cash flow effectively.
As CBI director general John Cridland has put it: "The vast majority of businesses know that good supplier relationships are important for success. But there is still too much bad practice out there that must be challenged: we need to encourage and foster a prompt payment culture as it supports growth and jobs."
Late payers beware – your days are numbered.
