Wednesday, 13 June 2012 16:16

Local Authority Late Payment Postcode Lottery

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Many businesses that work with local authorities are facing a 'postcode lottery' to determine whether their accounts are settled on time, or whether they must deal with late payments from their council customers, says the Forum of Private Business.

The claim is significant because, back in 2008, the government called for councils to pay their suppliers' invoices in no more than ten days - a way to keep small businesses' cashflow healthy, as well as to ensure liquidity within the wider economy as a whole.

A year after the ten-day limit was set across central government, and recommended to local authorities nationwide, the FPB made Freedom of Information requests to determine how many councils were paying on time - and found a varying picture from region to region.

The 2009 Picture

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Nationwide, the FPB found 58% of council-owed invoices became late payments in the FOI data it received back, when compared against the ten-day target - and the average time taken to settle invoices was 19 days.

While that may not sound like a long time compared to the 30-day or 90-day invoicing periods used by many businesses, it is still almost twice the length of time considered appropriate by central government.

Moreover, the regional picture varied significantly, with some parts of the country seeing 52% of bills paid on time, while elsewhere 89% of all invoices were ultimately settled by late payments.

"The real public-sector late-payment problem is where local authorities are concerned, where a great many contracts for small firms originate," says FPB senior policy adviser Phil McCabe.

The 2012 Picture

Fast-forward to 2012, and how have things changed? Well, it's not yet known, but the FPB has submitted a new round of FOI requests to try and find out whether more payments are being made on time by local authorities.

In a recent survey of 500 firms though, the FPB found that 51% of respondents considered late payment to be a problem, 23% went further and called it a 'serious' problem, and 16% - roughly one in six businesses - have almost ceased trading because of it.

"It will be interesting to see if anything has improved [since 2009] or, given that we are again in recession and overall levels of late payment appear to be increasing, become worse," adds Mr McCabe.

The Private-Public Payments Picture

Is the problem limited to public sector organisations? Not necessarily, although the FPB found that nearly a fifth of its survey respondents - 18% of the total - believe their clients in the public sector are the least likely to pay on time.

Alongside these, 81% said private firms are their biggest problem, but many were doing little to tackle the issue of late payment head-on.

Just 44% of the surveyed firms had formal credit control processes in place, with 38% preferring to combine formal and informal procedures.

Whatever approach you prefer, the right combination of services can put several lines of defence in place for your cashflow - from ongoing credit control to encourage on-time payments, to professional debt recovery to retrieve your funds when a client refuses to pay.

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Image "Lost Auction-Hurley's lottery balls and winning ticket" from flickr user The Conmunity is licensed under CC BY 2.0