Terry Corby, Chairman & Campaign Director, Good Business Pays
At Good Business Pays, we are on a crusade to stop small and medium-sized businesses having to wait longer than they should to get their invoices paid. This is a problem that has existed for many years, but despite the great efforts of many people and organisations, the problem of waiting a long time to get paid still exists. As a result it forces 50,000 SMEs to fold each year.
Many businesses who take a long time to pay will avoid the issue by saying “we pay within our contract terms”, although too often the contract terms are bad for small businesses, allowing bigger businesses to hang on cash for as long as possible. For a large business, the amount of cash held is relatively little, but to the small business it can mean the difference between success or failure. In reality, cashflow problems caused by late and slow payments means a small business may not be able to pay its bills, invest in new equipment, or grow.
Whether companies pay slowly or quickly, you would expect most or all to pay their invoices on time. However, a shocking number of companies are taking much longer than agreed terms to pay. This means SME owners and employees spending time on the phone, week after week, chasing long overdue invoices. It’s a waste of time and money, not to mention dishonest. Companies need to do what they agree to in contracts and there should be no excuse for paying later than agreed.
As part of companies’ Duty to Report statutory regulations, BEIS collects data on the payment performance records for all large UK companies (defined as a company with a turnover above £36m, along with a balance sheet of more than £18m or with more than 250 employees). The records collected include “invoices due but not paid within agreed terms”. The chart below shows the number of companies that currently pay their invoices later than their agreed terms. Only just over 5% of companies are paying all of their invoices on time.
Of the 3,558 companies listed, less than one in five companies are paying 95% or more of their invoices on time – the target set by the Prompt Payment Code. What’s even more shocking is that more than 300 companies are paying over 70% of their invoices later than agreed terms. We can only wonder what the effects on small businesses are of such delays and should remember that many of these companies’ payment terms are more than 60 days. Waiting for such a long time to be paid is unacceptable. It harms business and will undoubtedly harm the UK’s ability to recover and grow.
The statistics on the chart are shaped like the unhealthy middle-aged spread, where most companies are paying between 10-30% of their invoices later than agreed. We need to change this situation and turn the shape of this chart to an upturned Eiffel Tower, where the majority of invoices are paid on time with only the exceptions being late. At present, late payment is clearly the norm and it’s not good enough. Perhaps, as in Germany, interest should be charged on the late payment of invoices. I was taught in life and business that you mean what you say and that if you make a promise you deliver it. A contract is a promise – so why are so many companies breaking their promises? If you’d like to find out where your employer or client is on this chart, we have a free look-up on www.goodbusinesspays.com. Take a look and tell us your experience of their payment terms.