Late Payment Charges Only Taken Up By 11% of Firms

Figures taken from a government consultation into tackling late payment culture reveal that just one in 10 businesses paid late by clients take up the option of adding permissible charges.

The report published by the Department for Business, Energy and Industrial Strategy further confirms the shocking extent of late payments across the UK economy, with 97% of participants in the consultation saying they had experience of not being paid on time. More than a third of the businesses asked (36%) said more than half of their invoices were settled after the agreed deadline.

But looking into actions taken when payment terms are not met, just 11% of businesses said they exercised their right to add statutory interest and debt recovery costs to the bill.

Since 1998, UK businesses have been legally entitled to charge interest on overdue payments. Then in 2013, the rules were tightened further to allow creditors to charge for ‘reasonable costs’ of recovery, such as hiring a debt collection agency.

But the evidence that so few businesses are taking up this option underlines how much more the government has to do to tackle the issue. It also reveals how many companies are being penalised by late payments, in the form of lost interest and the costs they incur chasing their money.

Late payment impact

This was another topic the government’s consultation broached. One in 10 respondents said that repeated late payments led to them or their staff having to take a cut in their salary. Others reported handing out fewer bonuses or other incentives, while two businesses said they had had to lay employees off because their cash flow situation became so bad. Five blamed late payments on forcing their business into insolvency.

When combined with the related problem of larger enterprises enforcing long payment terms of anything between 60 and 120 days, more than a third of companies (38%) said delays getting paid meant they struggled to pay their own suppliers, creating a knock-on effect through the whole supply chain. Around a quarter similarly said they often found it difficult to pay staff on time or settle business debts, while a third (34%) said they relied on bank overdrafts to keep up with their own financial commitments while awaiting invoices to be settled.

The report outlining these consultation results states that “the level of late payment practices in the UK is far too high.” But we have all known this for the last decade or more. When given the chance to take meaningful action, the government has repeatedly failed to stand up to big business on behalf of hard-pressed SMEs, sole traders, contractors and freelancers.

If it truly believes in its own words, then this government must stop dancing around the issue with codes of conduct, commissioners and even allowing creditors to charge if payments are late. It must instead attack the culture of late payments at source, with tough, punitive action backed by legislation that sends a clear message that paying late will no longer be tolerated.

Image "Payment" by Flickr user "GotCredit" used in accordance with CC by 2.0.

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