Cash flow is key for many small businesses.
Poor payment tops key issues
Published: 18 September, 2009
KNUTSFORD: In latest Economic Downturn Panel survey cash flow worries as a result of increasing late payments are causing small businesses the most headaches, according to the latest Economic Downturn Panel survey carried out by the Forum of Private Business (FPB).
Almost a quarter (23%) of respondents to the survey selected late payment and, subsequently, poor cash flow as their ‘key issue’ – more than those who voted for a lack of sales (20%), and complying with health and safety regulations (11%).
Even declining bank lending was deemed to be less of a concern than poor payments. Banks’ tardy decision making was chosen as the major issue by 6% of respondents, and the steep cost of bank lending by 4%. In all, 42% of FPB members who took part in the survey reported a deterioration in prompt payments from customers – typically bigger businesses – compared to just 3% who said there had been an improvement.
The FPB, which ‘names and shames’ poor payers in its Late Payment Hall of Shame, is working with the Government to find solutions to payment problems, including encouraging companies to sign up to the new ‘prompt payment code’.
“Small firms’ cash flow is being decimated by credit restrictions and declining trade. Our research suggests that poor payment, which has always been a problem, is now threatening the very survival of many businesses,” said Phil Orford, the FPB’s chief executive. “We want the UK’s biggest companies to take the lead and pledge to pay their suppliers on time by signing up to the Code in order to set in motion a consensus of prompt payment through the supply chain.”
Already, under the Late Payment of Commercial Debts (Interest) Act 1998, small businesses have a Statutory Right to Interest (SRI), meaning they can in theory charge for late payments. However, few take advantage of this or are prepared to speak out publicly out of fears that large companies will simply take their business elsewhere.
In addition, many larger companies impose unilateral changes on their smaller suppliers' terms and conditions, often mid-contract and with little warning, effectively sidestepping the redress provided by the late payment legislation.
“Suppliers receiving underpayment on deliveries made under contracts agreed before the date of any letter notifying them of a change in terms and conditions should know they are automatically be entitled to interest under the terms of their original contracts or under the LPCD(I) Act,” said Stuart Blake, the FPB’s Adviser on Late Payment. “What is more, if their entitlement stems from the LPCD(I) Act, they will be entitled to a late payment penalty charge as well, assuming their contract postdates August 2002.
"Suppliers should be careful about fulfilling orders received after this letter was sent, since to do so may indicate acquiescence, and therefore ‘acceptance', of the new terms the letter seeks to impose."