It appears that many large firms within the UK are not following good payment practice and as a result, SMEs are having difficulty collecting on outstanding invoices. As reported by the Parliamentary Small Business Group in their most recent recommendation, all companies that supply the public sector should be made to sign a voluntary scheme called the Prompt Payment Code that would literally force them to pay promptly.
In the private sector, however, small companies still had outstanding invoices totalling £35.5 billion which was responsible for delaying growth in a great number of industries. As reported, it was not SMEs that were not meeting their obligations but rather larger companies that were delinquent in paying their debts. At the moment, there is no way to enforce payment which is why government is looking at alternative solutions.
For example, there are rules in force which allows businesses to charge interest on invoices which are delinquent but these rules have rarely been utilised. Government admits that legislation in regards to late payments has been ineffective and are looking for alternatives which will help SMEs collect on outstanding debts.
The chief executive of the Institute of Credit Management, Phillip King, believes that it is up to government to put pressure on larger firms so that they are forces to improve the way they pay their debts. He feels that if the public sector reserves the right to award contracts to firms that have demonstrated a willingness to observe good payment practices it will force others to follow suit.
Other research shows that late payments are responsible for reduced cash flow in a great number of UK businesses, especially in SMEs. It is clear something needs to be done to speed up payments, so government is looking at regulations which should provide solutions to this area which is having a significant impact on the wider economy.