Late payments are responsible for nearly a quarter (23 per cent) of insolvencies, new research has revealed.
The finding forms part of the Department for Business, Energy and Industrial Strategy’s (BEIS) new review into tackling the UK’s late payment culture.
The review has called for providers to recommend actions that can be carried out to protect small businesses from late payments and encourage a responsible payment culture.
Among those to respond, the Association of Accounting Technicians (AAT) has put forward three key recommendations to tackle late payments.
These include that the Prompt Payment Code is made compulsory for companies with more than 250 staff, payment terms are halved from a maximum of 60 days to 30 days, and a “clear, simple financial penalty regime” for non-compliance is introduced and enforced by the Small Business Commissioner.
The AAT added that even for those small businesses that can absorb late payments, the loss of income can stop them from investing and growing.
It’s for this reason, it adds, that the Prompt Payment Code should be made mandatory among all large companies. Introduced in 2012, the code requires large companies to pay their suppliers within a maximum of 60 days. However, as of the date of publication, just 2,000 companies have voluntarily signed up to the code, and those that have still regularly fail to meet the 60 day deadline.
The AAT said this is a result of little enforcement of the code and no financial penalties imposed for a failure to comply.
Commenting on the Government’s review, Phil Hall, AAT Head of Public Affairs & Policy, said: “Over the past decade or so there has been a stream of tweaks, voluntarism and reliance on big employers to do the right thing, all of which have failed to address the problem of late payments.
“The time has come for Government to legislate to solve the problem once and for all.
“This should include making the Prompt Payment Code obligatory for large companies, for payment terms to be halved to a maximum of 30 days and for a clear, simple financial penalty regime for non-compliance to be introduced and enforced by the Small Business Commissioner.”