Information on the changes to the late payment legislation

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8 years 3 months ago #810 by Leigh Harris
Yes and apparently there is not much improvement in the period to August 2012.

It looks very much like public bodies in N Ireland have not realised they are meant to be payment exemplars!

Does anyone have any information with regards Public Bodies in Scotland for instance?

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8 years 3 months ago - 8 years 3 months ago #811 by ashley smith
Matter's don't change if you go to the US. Under the Prompt Payment Code government agencies must pay automatic interest on invoices paid late.
A report to congress on the Department of Defence revealed 10% of invoices were paid late with SME having close on 15% of thier invoices paid late.

Most were not paid interest without a fight.

Most of the big companies that I have dealt with over the past twenty years only take account of an invoice from the date that they approve the invoice – or issue a PO. This can often be after numerous attempts to submit and chase up for payment.

FURTHER CONSIDERATION FOR CHANGES TO THE ACT (clarification)
My understanding of the Late Payments Act is that an invoice is due on the later of the request for payment or completion of work. Perhaps more consideration should be given to also tightening or dealing with instances surrounding contract terms, payment dates etc. as highlighted above this is often a problem where companies only recognise the invoice date from when they (finally) post it on their system which may be after numerous submissions.

As you may be aware there is little or no incentive to Large companies to take a more pro active stance in tightening up the purchase departments or making the process more efficient unless realistic penalties are introduced.

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8 years 3 months ago #814 by she001
I'm a bookkeeper to several companies. Only one company has ever used the legislation as a threat to try to get their money in. The others i work for are consistently late in paying and only pay when the creditor sounds like they mean business, which is usually 3-4 months down the line. This is not because they don't want to pay it's because they can't. As with a lot of business, they struggle to pay staff, rent, paye, vat etc before their creditors get a look in. It's knock on and i can't see the point in sending further invoices out for late payment if they clearly struggle to pay for services already rendered. Am i then expected to spend time, hence more money, on chasing the invoice for late payment interest. It's just not worth it. It's a tough time for everyone.

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8 years 3 months ago #816 by jimbo22
I can understand that, but what would happen if those several companies got paid on time by their customers ? Would that change how they paid their suppliers ?

If they are already getting paid ontime, and struggling to pay suppliers on time, I would question whether they should remain in business or maybe they should look to improve their profit margin. Everyone needs to make a profit !

Then again, what about those companies that are getting paid on the nose by their customers, yet delaying payment to their suppliers for months ? Is that right ?

There is surely a difference between cant pay and wont pay. That I accept

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8 years 3 months ago - 8 years 3 months ago #817 by ashley smith
Arh but Profit and Cash Flow are not the same thing. Many a company goes under whilst making a profit but is unable to meet its debts.

Refer to the News section where I compared five companies with identical turnover and profits but different cash collection cycles.

Yes there an arguement for more equity and less reliance on debt - after all look what happened to our banks who put too much reliance on Debt to finance thier operations, as soon as there was a downturn in trading they were unable to cover this from accumulated reserves.

But with an SME you often - especially the smaller ones - see that the companies are run day to day (zombie) - they do not have multiple remorte shareholders and a late debt is the difference between paying the mortgage this week or not!!!

SO consider
Day 1 client meeting
Day 5 quote issued
Day 6 quote amended- fee agreed - works commences
Day 14 job completed
Day 15 client issues PO now claiming its term prevail
Day 28 chase invoice for payment
Day 29 Clients accounts department acknowledges that invoice has been recieved and approved in full but payment will be made at the end of NEXT month !

My main point here is that there is no dispute the work is completed, but the client's policy is to use The suppliers money to cashflow its business....

Imagine if it treated every supplier in the same way.

SO I listen time and again to politicians saying SME problems are lack of bank lending B****** The sum above if in my account would make one hell of a difference to my cash flow... my supply chain would be paid quicker, my directors would be less stressed as to the risk associated with the client not paying....

End of the month means what ?
Cash for wages is required at least five days BEFORE month end.
But payment from a customer means that the cash is used the month FOLLOWING receipt.

So
Day
1 Do Work
14 Issue invoice to client, recieve invoices from suppliers
25 Pay Staff
45 Pay suppliers (eg. 30 days from invoice recieved - on day 14)
49 Pay PAYE (eg. 19th of following month)
55 Pay Staff (eg. end of 2nd month)
60 Client Pays
62 Cash Recieved

OK accepted that bringing down the period for payment is a short term thing that will eventually work through the whole economy, but in the short term I suppose you could call my views economic socialism in that I am asking the Large companies to redistribute their cash to the small ones !!!!

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8 years 3 months ago - 8 years 3 months ago #818 by ashley smith
But then this isn't in reality the problem its the CAN PAY WON'T pay

Has anyone read through corporate accounts ?

Look for the sections on Social Responsibility and look for how many companies site thier responsibility to their supply chain - other than ensuring that the goods supplied are fit for them to sell on.

I have argued that Corporate Responsibility extends to your whole supply chain. If as the USA, EEC and UK all recognise that SME are the innovators, job creaters and backbone of our economies I still fail to see why they won't put in place legislation to assist.

NOW I take on board the comment raised above lets consider the effect of a £10,000 invoice
Supplier pays me late and pays me £100 penalty (wow nice client!)
I pay my supply chain late (say 10 suppliers in total with an average £900 invoice) so my total penalties are £400 (£40 x 10)

So ideal world in the old system and I agree it doesn't work. One late inward equals 9 late outwards and i am £300 out of pocket.

Looking at a percentage the £100 is 1% penalty the £40 are 4% (of £900) so the old system had an inbuilt inequality even if everyone paid.

I would much prefer to see the revision be simplified to a % of the debt with say a minimum of Euro 40 (to appease EEC!).

Interest is not compensation for late payment and the cost of collection, it is merely a contribution to the finance cost of work in capital - eg. what the SME bank overdraft equates to.

Penalties are designed to change peoples attitude. They are in the control of the offender - don't commit the offence - don't recieve a penalty.

For those who say you can't change the culture I ask you to look at smoking. It has taken a long long time but we now work in smoke free offices, and enjoy smoke free environments in our pubs, restaurants and transport. It needs this level of effort (and probably time) to change the attitudes of the payers. I am glad to see govenments leading the way and maybe the further revision in 2018 will be to bring large companies into line and then in 2023 SME into line so we all have a level playing field.

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