In the U.K., some sweeping changes may be on the horizon for large firms that are perennial late payors.
News reports came this week that large businesses in the U.K. may be liable for fines if they pay smaller suppliers late. That’s part of a series of proposals on offer from Minister of Small Business Kelly Tolhurst, and comes in the wake of well-documented damages suffered by small businesses (SMBs), where it is estimated that 50,000 firms close down annually as a result of late payments and resultant cash flow crunches.
As reported in Accountancy Daily, there is no change suggested to the 60-day payment terms set out in the Prompt Payment Code, which is voluntary. However, the oversight of that code is slated to move to the office of Small Business Commissioner Paul Uppal. The office will be given broader powers to tackle late payments — where, for example, it will be able to issue fines. Other proposals include mandatory reports on information and disclosure of when payments are rendered — and whether they are timely. There can also be binding payment plans for late payers, said the site, and payment practices would have to be listed in annual reports.
Under current practices, the Prompt Payment Code is administered by the Chartered Institute of Credit Management for the Department of Business, Energy and Industrial Strategy, and has logged 2,000 members so far.
Next steps involve a consultation period. As reported, the government will work with the Financial Reporting Council (FRC) to improve transparency tied to supply chain finance. There will also be directives to increase the use of accounting and invoicing software — £1 million ($1,273,940 USD) in funding has already been allocated to that effort.
In a statement, Tolhurst said, “The majority of businesses pay their bills on time, with the amount owed in late payments halved over the last five years. But, as a former small business owner, I know the huge impact a late payment can have on the ability of a small business to plan, invest and grow. These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly, ending the unacceptable culture of late payment. I intend to establish a ministerially led group to bring together key government departments to act on improving prompt payment across both the public and private sectors.”
As reported, research from the Association of Independent Professionals and the Self-Employed (IPSE) has estimated that two-thirds of self-employed workers in the region have lost as many as 20 days of time trying to get late payments satisfied.
“We are pleased that the government has listened to the U.K.’s smallest businesses, and is strengthening their carrot and their stick. This must now end the late payment culture that so many big businesses get away with,” said IPSE Deputy Director of Policy and External Affairs Andy Chamberlain.
Separately, SmallBusiness.co.uk reported that the shifts, as mentioned above, mean that company boards will be held responsible for supply chain payments — a broadening of responsibility that reaches well beyond finance directors.
Mike Cherry, chairman of the Federation of Small Businesses (FSB), said, “Small businesses will be delighted with today’s announcement. FSB has worked very hard with [the] government to create a whole-board approach to late payment within the U.K.’s large companies, and empower audit committees to look after the supply chain.”
Creative Agencies And Late Payments
Separately, in the ad and creative agencies vertical, Digiday reported that “the long-simmering issue of agency payment windows has been brought to a boil.” That statement comes as General Mills said it was looking for a new creative agency, with a payment window of 120 days. The site reported that larger consumer brands, and consumer packaged goods (CPG) companies, are stretching payment terms. Among them is Chrysler, which boosted payment terms to 180 days. Mondelēz, in another example, has a 120-day payment window.
“There’s somehow become this desire to keep one-upping the previous deal,” said 4A President Marla Kaplowitz. “We’ve reached that point where you’ve pulled as much as you can,” according to the site, which also noted that publishers and ad tech companies are seeing a ripple effect from late payments.