Posted by Tony Watts on 9th Jan 2019

“Traffic light system” for persistent late payers welcomed… but Government needs to go further to protect SMEs

The news that large companies that fail to pay their suppliers on time will be named and shamed under plans to introduce a traffic light warning system has been welcomed by a leading credit checking company.

But they also say that the move on its own won’t be enough to protect many of the 50,000 suppliers who currently go out of businesses every year.

“Late payments are the scourge of smaller businesses,” says Ian Carrotte, founder of ICSM Credit, “and many of the worst culprits are bigger customers who cynically delay paying suppliers because they, know they can get away with it.

“Figures from The Federation of Small Businesses show that that this practice is causing about 50,000 businesses to fail every year.

“It’s great that the Government, through the UK Small Business Commissioner, are stepping up sanctions with a new ‘traffic light’ system that will flag up the worst offenders. But if they were really serious about protecting the small business base that holds this country’s economy together, they’d introduce some real teeth – like fines.

“SMEs (Small & Medium Size Enterprises) employ over 16 million people in this country – and every year tens of thousands are thrown out of work because of late payments. Surely we can do more than this to protect them?

Research from Lloyds Banking Group, shows that of those companies that reported their payment practices (and not all have been doing so) almost two thirds (65%) take more than 30 days to settle invoices, while 21% take more than 50 days.

Large companies have been required to report their payment practices twice a year since 2017, however, many have so far failed to do so. From now on, as well as frequent late payers being given a red light, allowing suppliers to avoid them if they so choose, those companies that fail to report their payment terms will also receive a red.

“I’ve been banging on about this for years now,” says Ian Carrotte, “and the Government’s previous attempt to rectify the situation, the Prompt Payment Code introduced more than a decade ago, under which signatories commit to pay within 60 days, was pretty much a waste of time.

“The fact that Carillion was signed up for the Code tells you all you need to know about how big players cynically circumnavigate the rules. They went down the pan owing almost £7bn - having regularly kept some of their suppliers waiting for up to 120 days.”

So, what can companies do to avoid being on the wrong end of a late paying customer?

“Yes, the new list will be helpful,” says Mr Carrotte, “although I’d expect it will take some time for names to start coming through the system. It also doesn't cover smaller companies who don’t pay their bills.

“Much of the information is readily available now as we’ve been operating a credit referencing service with a name and shame element to companies – primarily in the print and haulage sectors – for some 28 years now, where we track how businesses are faring, and our members play a key part in that by reporting on poor payers.

“My concern is that some companies desperate for business will take on or keep a customer even when they know they are slow payers. It’s critical for your future that you check out every customer’s financial situation on a regular basis as well as establish and maintain sensible credit terms.

“If they start to struggle owing you several months’ money, you won’t be the first in line to get paid… and they could take you under with them.”