Is the Prompt Payment Code Worthless to SMEs?
Paul Daine -International Commercial Debt Recovery Specialist
Specialising in national and international commercial debt recovery with over 35 years of experience in the industry.
Under Government rules, large companies must publish details of their payment terms, their processes and their performance when it comes to payment. What this has made public is something that SMEs have long been aware of: many big businesses fail to pay their suppliers or contractors on time.
The Government issued its Prompt Payment Code in 2015, encouraging companies to sign up to it, but has it made a difference?
90 Days of Pain
An estimate from BACS puts the amount owed to SMEs in overdue payments at around ￡26 billion.
One criticism of larger companies is that, by deferring payment to 90 days, they are effectively getting interest free credit in the form of goods and services from their suppliers, on terms no bank would offer them.
On the flipside, for SMEs, cash flow is essential to their continued survival, and any delay in it can end up causing severe problems.
There is a poor payments crisis, with many SMEs forced to operate in the red, and finding themselves constrained and hampered by the conditions they are in
The damage goes beyond this immediate impact, however, and affects the wider economy, restricting growth and employment.
Protection and Processes
If the Prompt Payment Code isn’t working, what can SMEs do to protect themselves against late payment?
One key aspect is to become far more proactive and not simply be reactive.
This means putting clear processes in place to help clarify their own payment terms, and to ensure due diligence before signing on the dotted line.
At a basic, entry level, this means knowing who your potential customer is, and gaining as clear a picture of them as possible before committing products or services to them.
This can involve checks based on other business’ experience as suppliers or contractors, and seeing if how they portray themselves matches up with records.
Credit management and getting paid requires a systematic, procedural approach
Where measures prove unsuccessful, SMEs should be willing to engage external, professional assistance, through a specialist collections agency for commercial debt recovery.
Discover more about reducing the risk of late payment in a report that I developed with Business Aspects Magazine.
Get your free copy by clicking here or on the image below.
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6 年It’s my pet peeve that large Corporates and Public Sector organisations tend to be very slow payers - hiding self righteously behind lengthy terms in their contracts - adopting a ‘take it or leave it’ approach! It makes me wonder how many of the annual small business failures are down to these big bully tactics?
Multiple award winning photographer & owner of Commercial Photography North West
6 年It’s a common perception because it’s largely true. The number of big businesses, corporations and institutions that pay on time or before is tiny. I cherish the clients I have that fall into that category, and the relationship I have with them. Of course, I try to give my best to every client, but I especially look forward to working with people who clearly value what I do for them. I imagine the Code is voluntary? In which case, what use is it? Those who abuse payment terms will continue to do so. Please correct me if I’m wrong.