Late payment kills businesses, it’s a fact.
Latest research shows that British SMEs are having to wait an average of 41 days longer than their original agreed payment terms before invoices are paid. (source: BACS)
Business and Enterprise Minister Michael Fallon said in an announcement released yesterday:
“Late payment causes real cash flow problems for entrepreneurs. It stops them from growing their business – we need to change the culture.
“Too many of our biggest companies are ignoring the Prompt Payment Code. My message to them is clear – make prompt payment a priority or face the consequences of being named. I’m confident that driving up support for the common sense principles in the Code will have a very positive effect.”
Currently 1,182 companies are signed up to the Prompt Payment Code. However, only 27 FTSE 100 companies and five FTSE 250 companies are signatories.
The Minister has written to all FTSE 100 and FTSE 250 companies. The letter urges companies to sign up to the Code, which will be four years old in December, and warns that the names of any companies that fail to do so will be publicised in the new year.
|Code signatories undertake to:|
|Pay suppliers on time|
|Give clear guidance to suppliers|
|Encourage good practice|
Last month the EU also launched a late payment campaign:
Every year across Europe thousands of Small and Medium Enterprises (SMEs) go bankrupt waiting for their invoices to be paid. Yet late payment of bills is often seen by many as a perfectly acceptable practice. To end this damaging culture of late payment in Europe, European Commission Vice President Antonio Tajani launched today (5th October 2012) in Rome an information campaign across all 27 EU Member States and Croatia, to encourage speedy incorporation of the Late Payment Directive into national law, even before the absolute deadline on 16th March 2013.
The new rules are simple:
- Public authorities must pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days.
- Contractual freedom in businesses commercial transactions: Enterprises should pay their invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair to the creditor.
- Enterprises are automatically entitled to claim interest for late payments and can able obtain a minimum fixed amount of €40 as a compensation for payment recovery costs. They can also claim compensation for all remaining reasonable recovery costs.
- The statutory interest rate for late payment is increased to at least 8 percentage points above the European Central Bank’s reference rate. Public authorities are not allowed to fix an interest rate for late payment below this threshold.
- Enterprises can challenge grossly unfair terms and practices more easily before national courts.
- More transparency and awareness raising: Member States must publish the interest rates for late payment so that all parties involved are informed.
- Member States are encouraged to establish prompt payment codes of practice.
- Member States may continue to maintain or to bring into force laws and regulations which are more favourable to the creditor than the provisions of the Directive.
The new measures are optional for enterprises, insofar as they acquire the right to take action but are not obliged to do so. In some circumstances, a business may wish to extend the payment period for some days or weeks to keep a good commercial relationship with a specific client. But the new measures are obligatory for public authorities. They should lead by example and show their reliability and efficiency by honouring their contracts.
Businesses are at risk of failing due to liquidity problems. A recent survey reveals that the written off debt suffered by Europe’s businesses has grown to 2.8% of total receivables, to reach the unprecedented level of €340billion, a figure equalling the total debt of Greece, representing one third of total annual healthcare spending across the EU’s 27 countries and amounting to more than double the EU’s total 2102 budget of €147 billion. And there is also a divide between the north and the south which is severely hampering the integration of the EU’s single market: it takes an average of 91 days for B2B transactions to be paid in the southern region, as compared to an average of 31 days in the north.
The Late Payment Directive 2011/7/EU is crucial for the completion of the single market and for restoring normal lending to the economy. The Directive must be transposed into national law in all Member States by March 16 2013.