Prompt Payment Code
As we entered 2013, one thing there was some degree of certainty of, in the continuing economic uncertainty, is that more businesses will falter and collapse.
I am sure many of us know of companies, even those with apparently healthy order books that fail, partly due to poor cash flow, the result of customers not paying their bills within a reasonable time frame.
Some four years ago, the Institute of Credit Management set up the “Prompt Payment Code”. Signatories to the Code are obliged to pay suppliers within an agreed time and ensure there is a proper process for dealing with any issues that might be the cause of delayed payment.
In 2012, Business Minister Michael Fallon appealed to all companies listed on the FTSE 100 and 250 to sign up to the code – or be “named and shamed”!
Mr. Fallon was hardly at risk of being overwhelmed by the rush but at least some notables eventually declared they had “signed up” to the code. But not it seems, without first setting out payment terms, which indicated a laughable misinterpretation of the word “prompt”. One such notable, a retailer whose customers invariably pay cash, described 75 days as representing their “commitment to pay their suppliers fairly”. Another suggested 120 days would “support the cash flow of smaller firms within its supply chain”!!?
Clearly we need more than this “Prompt Payment Code” to address the problem of late payment that has been rife in our industry for many years. Positive action must be taken to ensure that the larger companies are not responsible through a “late payment culture” for holding back the UK’s long awaited economic recovery.
As a representative of the law firm Pinsent Masons recently pointed out, “SMEs currently have the right to claim interest and compensation in the event of late payment”, but these rights are rarely relied upon for fear of losing large customers. At a time when the plight of SMEs is greater than ever, they need more than just a signature on a code. They need larger organisations to put their bargaining power to one side and settle their invoices in good time on a regular basis.”
This will help to ensure that SMEs across the UK have the cash flow they need to continue as a going concern. Then we can hopefully begin a return to greater business stability and certainty.
Mike Nankivell is a director at Space Airconditioning plc
