In recognition that getting companies to sign the Prompt Payment Code has made little difference to their payment habits, prime minister David Cameron has announced a new attempt to tackle late payment. A consultation paper on the subject will be published in the next few weeks, he said.
The European directive on late payments says that business-to-business payments should be made within 60 days and public sector bills should be paid within 30 days. Many big companies, especially in the construction industry, routinely flout this and get away with it.
Questions that the government’s consultation paper will ask include:
- How the Prompt Payment Code can be strengthened, and whether there is more that can be done to hold companies to account against it
- How government can encourage greater oversight and responsibility for payment policies at senior management and board level
- How best to name and shame poor payers
- Whether more can be done to enforce existing legislation, including the provisions on payment terms – for instance the prohibition of ‘grossly unfair’ payment terms.
- What can be done to encourage more companies to make use of their existing statutory right to interest for late payments
- Whether government can do more to help SMEs to help themselves, including through new technologies and services like electronic invoicing and mobile payments.
Despite the existence of legislation and the voluntary Prompt Payment Code, established in December 2008, 85% of small and medium sized businesses say that they have experienced problems with late payment over the last two years.
It has taken until this year for most of the major Tier 1 construction companies to sign up to the Prompt Payment Code, although some such as Shepherd Construction have still not signed up to it, with no apparent sanctions being imposed.
According to research by StreetwiseSubbie, an advice bureau for construction subcontractors, the Prompt Payment Code has been ineffective. Fewer than 4% of specialist contractors who had worked on government projects were paid within 30 days. Almost 29% were not paid between 60 and 90 days and almost 5% said they had been paid later than 90 days.
Former trade minister Lord Digby Jones also acknowledged that the code had failed. He told the BBC: "I think the code certainly has not worked. It was a nice statement of intent. At the end of the day, have you heard of any big business being shamed into changing?"
Prime minister David Cameron said: “It’s not right that suppliers are not getting paid on time for the work they do and the services they provide and I know that late payment can have devastating effects on our small and medium sized businesses. I am determined to make Britain the best place to start, grow and do business and to back people who want to work hard and get on. The government has already taken steps to help address this issue but I am clear that more needs to be done to build a business culture across all sectors of the economy that sees the fair, prompt and reliable payment of suppliers become a core corporate responsibility which is taken seriously at the most senior levels.”
CBI chief policy director Katja Hall said: “Late payment is a serious issue for all businesses but particularly for smaller firms, as cash flow is their life blood. Businesses already have a number of routes for recourse if they are paid late, but the reality is that few choose to act on late payment for fear of fall out with their customers. The CBI backs the Prompt Payment Code but there are also other ways of addressing late payment – for example some suppliers will choose to work with customers through supply chain finance agreements.”