Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Large companies accused of destroying smaller business by paying late

by
16th Aug 2007
Save content
Have you found this content useful? Use the button above to save it to your profile.

The Institute of Directors (IoD) has blasted large companies for late payments to their smaller suppliers, and stepped up its campaign for government intervention to tackle the problem. The IoD’s latest survey, published on Monday, shows late payment to be the biggest concern of small and medium enterprises (SMEs), and cites large corporate buyers’ lengthening credit periods as the main concern. Its arrival coincided with a Forum of Private Business (FPB) survey showing 75% of respondents citing late payment as a “considerable threat” to their viability, and over 60% wanting the right to make anonymous complaints about large customers to competition regulators.

IoD director-general Miles Templeman accuses the government of sending the “wrong signals” to big business through the mid-year downsizing of its SME service, which included the disbandment of a task force that had been working on late payment issues. IoD and FPB are both members of the Better Payment Practice Group, ten years old this year, which maintains a searchable database of prompt payers at its Pay On Time website and has been signing up companies of all sizesd to its Better Payment Practice Code.

But the Institute’s presentation of late payment as a “growing problem”, with big companies’ days payable outstanding (DPO) drifting upwards, is contested by some regular observers of the situation. “Our most recent study of performance in this area shows that the UK’s largest organisations have improved the speed at which they pay their suppliers, of all sizes,” says REL Consultancy president Stephen Payne. “In fact payable days has reduced by 6% over the past two years.” While agreeing that big customers sometimes exploit their indispensability to smaller suppliers, by overrunning their agreed payment dates, he argues that many SMEs could do more to tackle the problem themselves – especially by getting accurate invoices in on time, complaining promptly if a deadline is missed, and making sure there is no service lapse that gives the client a reason to delay.

Companies can improve their cashflow, economising on working capital, by letting DPO rise; but surveys suggest that the UK’s reduction in average days’ working capital (by 3% to 43.8 days in 2006) was achieved at least in part by reducing inventory – operational leanness rather than financial meanness. EU countries vary widely in their average speed of payments, without obvious effects on their economic performance, because faster payment to others (lower DPO) goes together with faster collection of payment from others (lower days’ sales outstanding). While many small companies will rally behind the IoD’s lobbying for more action from secretary of state for business John Hutton, some may regard this as an exercise in running to stand still.

Tags:

Replies (5)

Please login or register to join the discussion.

avatar
By NeilW
21st Aug 2007 12:16

Simple solution
There is a simple solution to this problem. You let HMRC collect late payment fines and not customers. That way HMRC can use their 'guilty until proven innocent' powers to force companies to prove that they have paid on time.

That way the onus falls on Accounts Payable to chase invoices and monitor payment periods to avoid a costly fine.

For those that pay on time and have good AP practices it would be a simple compliance report.

Until you have something that makes AP funding more expensive than a bank, then large companies will exploit their power.

NeilW

Thanks (0)
avatar
By frauke
16th Aug 2007 15:07

Late payments
This I believe is a UK problem.

I find the Japanese pay in 21 days, the Europeans (except French, who can be as bad as the British) pay in 30 days, Asians about 45 days, and they apologise if they don't! Even the US pay in 30 days.

60 or 90 days month end seems to be doing well here!

Thanks (0)
avatar
By User deleted
28th Aug 2007 14:11

HMRC ?
What do they have to do with companies paying suppliers late ?

Thanks (0)
avatar
By NeilW
03rd Sep 2007 15:50

Think about it
Who are customers more frightened of?

- a small supplier who knows that they can't enforce the late payment legislation if they want any more orders.

- HMRC who can go through the order book and fine the company for every invoice paid late on the usual 'guilty until proven innocent' basis.

Which is more likely to promote a culture of 'on-time' payments?

NeilW

Thanks (0)
avatar
By AnonymousUser
10th Sep 2007 11:14

I see it as a PACT

Late payments can happen this way :

Sales Manager sold goods for his company to customer Mr B. Mr B presented the invoice to his company for payment by CASH.

Facts :

- invoice is $ 10,000
- Mr B sents the invoice $ 10,000 for payment approval and obtained cash from his company to settle invoice.
- Sales Manager banks in $ 10,000 to his own personal bank account
- Sales Manager loans RM 1,000 to Mr B as promised before the contract of sales took effect
- Sales Manager holds on to this "unsettled" invoice for a long long time, say, 24 month, before payment is made by Sales Manager issuing his personal cheque and banking it into his company's bank account

Sales Manager and Mr B are just staff, not bosses nor own their companies.

Does this sound a reason why payments are delayed?

I wonder how anti-money launderers think.

Thanks (0)