As if it isn’t bad enough that small firms are kept waiting for months on end for payment, their debtors are coming up with ever-more creative justifications. With excuses for lax payment practices ranging from ‘I haven’t been paid yet myself’ to ‘I can’t find the cheque book’, it’s little surprise that small business owners are feeling the pinch. The Federation of Small Businesses are determined to sign up organisations to the Prompt Payment Code, so hopefully that'll change – but you might not want to hold your breath…
According to a new survey by Bibby Financial Services, a whopping 34% of businesses in the UK claim they are unable to pay outstanding invoices because the person responsible for signing the cheques is (conveniently?) out of the office on annual leave or at off-site meetings. A similar number blame delivery problems for the non-arrival for a cheque, claiming it has already been dispatched or that there’s some problem with the postal system. Ordinarily, this might sound like a ‘dog ate my homework’ level excuse – but given the recent Royal Mail strikes, perhaps they’ve got a point. The UK’s beleaguered banks are also getting fingers pointed at them (not for the first time lately) – 14% blamed the inadequacies of their financial institutions.
The survey’s findings are likely to further infuriate the FSB, whose chairman John Wright last week accused large companies of using the recession as an excuse not to pay smaller suppliers. And the problem is proving costly: Bibby reckons that UK businesses becoming more inventive with the truth when it comes to coughing up are costing UK SMEs something to the tune of £2bn a year. That’s a lot of money, by anyone’s reckoning – and it’s inevitably having a knock-on effect on the companies affected, with 43% unable to pay their own suppliers on time. What’s more, staff at small companies are also suffering as a result – 30% of firms are being forced to freeze staff salaries as a result of being paid late. Crikey.
Wright’s plan to get more companies signed up to the Prompt Payment Code – endorsed by none other than business secretary Peter Mandelson himself – is certainly a good idea. But unless it gets some teeth (ie. it’s obligatory, not just best practice), it’s a bit hard to see it having any real impact. Until then, SMEs may face a rising tide of IOUs - and some ever-more-implausible excuses.
In today's bulletin:
Pick-up in job market adds to recovery hopes
McLaren gambles by branching out into road cars
Dresdner traders demand £30m in bonuses
Editor's blog: Putting the squeeze on the booze industry
Late payers get creative with the truth