A consultation to look at the practice of late payments could be too late for some businesses already struggling to survive.
The Government has promised to tackle the problem of late payments made to small and medium-sized businesses with the announcement from David Cameron that a consultation will begin later this year.
But the news could be too little too late for small businesses crippled by a growing culture by larger firms who string out payments terms, with some not paying at all, according to Alistair Gregory, a partner in the Commercial department at Stephensons Solicitors LLP.
He said: “Small and medium-sized businesses need the reliability of regular payments to maintain a healthy cash flow and keep their business on track. Extended payment terms imposed on them by larger clients could threaten the stability of the business if they fail to pay on time.
“We have seen instances of companies being forced out of business because their cash flow was ruined by the overly-extended payment terms dictated by large corporates in a strong financial position. While the consultation is to be welcomed, the hope is that it will lead to proper change for the small and medium-sized businesses that provide jobs and income to millions of workers.”
A recent YouGov poll commissioned by Barclays Bank found that 85 per cent of SMEs have had problems with late payments in the last two years while £30.2 billion is owed in late payments to SMEs this year alone, according to payment company, BACS.
The consultation will look at how to encourage senior managers and board to take responsibility for payment policy; it will highlight prompt and late payers; the Prompt Payment Code (PPC) will be strengthened to hold companies to account and existing legislation will be enforced to encourage businesses to use their right to add interest to late payments.
Alistair added: “Despite the ability to add interest to late payments, few businesses take this route to actively reclaim their debts for fear of losing key customers. It’s hoped that the consultation will make it easier for businesses to enforce this right and encourage late payers to take their responsibility seriously."