This latest evidence further underlines that, despite some tough talking, the government is failing in its promise to tackle the abuse of payment terms and is allowing businesses to fail needlessly as a result.
By compiling data on debtor days since 2011, Begbies Traynor found that 115,000 UK firms hit the 57-day payment average in 2018. The law states that, unless the parties agree to different terms between them, invoices should be settled within 30 days by default.
Because companies are allowed to agree their own payment terms, it means the majority of invoices paid after 30 days are not breaking any laws. However, it is well known that this approach is open to abuse from large companies in particular, who steadfastly insist on 60 or 90-day payment terms as a condition of agreeing contracts, forcing smaller suppliers to stretch their cash flow to the limits.
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The damage this does to operating models is borne out by the clear link Begbies Traynor found between delays to payment and insolvency. Out of the 1000 companies it found went bust last year, a third faced average payment times of longer than 57 days, and 15% were waiting for an average of 86 days.
Rather than turning a corner on late payment culture, the figures also suggest things are getting worse. Overall, the research found that average debtor days for all companies had increased since 2011.
All of which adds up to a damning indictment of the government’s duplicitous stance on this issue. Amidst all the paralysis of Brexit, the Chancellor’s barely-noticed Spring Statement did include more lip-service to solving the problem - praise for the FSB’s ongoing Fair Pay, Fair Play campaign, a proposal to make a non-executive director at large firms responsible for payment practices and to force companies to publish data on payments in their annual reports.
But without the bite of legislation - i.e. to make 30-day payments mandatory across the board - this is all just more talk. The idea of making companies publish details of payment practices was suggested following a Parliamentary enquiry in 2013 and has been partly implemented since. All the Chancellor is suggesting is reinforcing the wording in the rules - without the stick of legal censure, it is nowhere near enough to force changes in behaviour.