I do not believe a late payment levy would be a popular option. The potential improvement in cash flow would be negated by the potential loss of business relationships with customers.
London, GB (PRWEB UK) 30 August 2013
Existing debt to small businesses in the UK is estimated to be over £30bn. With current ‘penalty’ systems not working to improve this figure, small businesses are being hit hard with cash flow problems as they are forced to wait up to 120 days or more before receiving payment.
According to an article in the Telegraph, published on 12 August 2013, recent Government talks suggest a move towards late payment levy charges for businesses that fail to pay within 30 days of the generated invoice date. Although it is hoped that this will solve any late payment issues, businesses should keep in mind how buyers may maintain the position of paying as late as possible in order to improve their cash flow.
Simon Carter, Director of Touch Financial Business Finance Intermediary challenges the suggested move, stating, “These recent talks about ‘introducing’ a late payment levy are a little confusing to me. The ability for the supplier to add a percentage charge and claim compensation for any late payments is already in existence and has not helped suppliers so far.”
“I am not aware of any of the thousands of customers we deal with [at Touch Financial] who would ever look to charge this penalty. I do not believe a late payment levy would be a popular option. The potential improvement in cash flow would be negated by the potential loss of business relationships with customers.”
This new legislation will have to be effectively policed to have an impact, unlike the little-known Late Payment of Commercial Debts Act of 1998. It will also require wider participation than the Prompt Payment Code (PPC), which attempts to encourage best practice in late payments by naming and shaming policy offenders, which has seen only half of the FTSE 350 companies targeted signing up. This casts questions on how the new late payment policy will effect actual positive change.
Moreover, mandatory fines on late payments sound like an effective solution, but these can be circumvented by the demand for longer payment terms by larger businesses.
Kate Sharp, CEO of the Asset Based Finance Association (ABFA), suggests mitigating steps rather than a simple solution to the problem: “The issues of late payment have been around for centuries and, whilst the Government’s ambitions to eradicate the problem are laudable it is obvious there is no simple legislative solution. This is just one of many issues faced by businesses everywhere that, unfortunately, is unlikely to be going away. There may not be a cure but there are a number of ways in which a business can mitigate the damage caused by late payment and forward thinking businesses will have, or be looking at putting, such measures in place.”
“I don’t believe that there will ever be a quick solution to the problem of late payment, as this will require a cultural shift in addition to legislation and penalties,” concurs Carter. “A better solution would be a government initiative to make small business owners more aware of the funding solutions available to them which can help accelerate the payment of invoices. Invoice finance is a prime example.
Until the government or any other official body can come up with a final solution, suppliers are advised to read all small print regarding repayments from purchasers and explore alternative funding solutions such as invoice finance, which advances long payment terms down to less than 24 hours.”
Touch Financial is an award-wining business finance intermediary that is committed to finding the right finance solutions for UK businesses. Experts are on hand to offer free advice on business funding solutions.