One of the main contributing factors as to why the UK economy is struggling is due to late payments. At the moment almost a quarter of insolvencies (23 per cent) are being caused by late payment issues.
As a result, many businesses are experiencing a myriad of problems due to late payments not being made.
Consequently, this is having a knock-on effect to small and medium-sized enterprises (SMEs), as the loss of income means it is stopping them investing and growing.
In 2012, the Prompt Payment Code was introduced as a potential solution for late payments. This voluntary code requires large companies to pay their suppliers within a maximum of 60 days.
However, only 2,000 companies have signed the Code agreement and if a company does breach the code, there is little enforcement and no financial penalties imposed for a failure to comply.
Since April 2017, the Government has recognised the shortcomings and introduced a requirement that involves companies to report on their payment practice on a half-yearly basis.
While this provides sound data for policymakers, it doesn’t tackle the issue of businesses complying with the code.
The Associated for Accounting Technicians (AAT) has a strong interest in improving matters, as 60 per cent of its 140,000 members either work for or run their own SME.
AAT has proposed three recommendations to the Department for Business, Energy & Industrial Strategy, these are:
- It should be compulsory for companies with more than 250 staff member to sign and comply with the Prompt Payment Code.
- Payment terms should be halved from a maximum of 60 days to a maximum of 30 days.
- The Small Business Commissioner should introduce and enforce a simple financial penalty regime for companies that are non-compliant.
Because of the diverse and comprehensive backing for AAT’s recommendations for payment reform, it is making it increasingly difficult for the Government to continue to not act upon this growing payment issue.