Could prompt payments for SMEs soon be a legal requirement?
If you are a sole trader or the owner of a small or medium sized business, you’ll know that it’s often the biggest companies that take the most time to settle your invoices.
I’ve certainly found this to be the case over the years. I refused to work for one major multinational when they asked me to sign a contract agreeing to payment terms of three months.
Conversely, I used to do work for an advertising agency in Munich. My job was to check through copy that had been translated into English and make sure that it would read fluently to native speakers. Each time I submitted my invoice, the money would be in my account within 3 days.
Needless to say, I prioritised this company’s work whenever it asked me to help out.
We all like to be paid promptly, so I was heartened to read that, according to a YouGov poll commissioned by the Association of Accounting Technicians (AAT), 73% of MPs agree with three changes that AAT wants to made to the voluntary Prompt Payment Code.
- For the code to become compulsory for firms with more than 250 employees
- For maximum payment terms to be 30 days instead of the current 60
- The introduction of a financial penalty scheme for persistent late payers, to be enforced by the Small Business Commissioner.
Recent research by the Small Business Commissioner and Lloyds Banking Group has highlighted there is an ongoing problem with late payments. The findings revealed that 65% of large firms take over 30 days to pay bills, with one in five not paying up until 50 days or more.
While it is good news that most MPs back the AAT’s suggestions, the question remains: “Where do we go from here?”
Currently there is no upcoming legislation to update the Prompt Payment Code and, although the Department for Business, Energy & Industrial Strategy has recently called for public evidence on the issue of late payments, it is currently “analysing feedback”.
So, if you support the changes, the best option currently open to you is to write to your MP asking them to support them and consider backing or introducing legislation to make them happen.
As for government itself, the bad news is that it has not hit its own prompt payment target for over a year. Let’s hope this changes in 2019 and government departments lead by example – before making the prompt payment system faster and fairer.
THP Chartered Accountants
If you have any queries as you get up to speed, do be sure to get in touch with us here at THP Chartered Accountants. we can also provide you with everyday assistance with bookkeeping and accountancy, auditing and business management or company restructures, acquisitions and much more, with offices in Cheam, Chelmsford, Wanstead, Saffron Walden and London City.