It is interesting to note, and perhaps not surprising given the fallout from the banking crisis that Late Payment has worsened for many SME with a recent report published by BACs claiming 59% of SME experience Late Payment with the average being 43.4 days longer than the agreed term.
Barclays Local Business Annual Late Payment Report found that SME spend on average 1.65 hours per day chasing late payments which the government has estimated costs each UK SME £5,000 per annum, but similarly recognised that this may be low given that it is often the principle who chases debts from slow paying customers.
It is interesting to note that at a time when the UK government openly recognises the risks posed by Late Payment to SME, and a succession of studies revealing increased debtor days, higher write offs (Interim Justia 2012 report revealed that total bad debts in Europe equated to £340 Billion more than the total debt of Greece) that the opportunity to further tighten Late Payment legislation is not being considered.
This situation is all the worse given that HMRC introduced a new penalty system this year whereby automatic penalties of up to 4% are being levied on business who pay their PAYE late which could rise to 14% if the tax remains outstanding for more than twelve months.
Our government owned banks are no better, RBS charges a staggering 29.5% for unauthorised overdrafts plus £35 per day for unpaid items whilst Lloyds charges 26.4% and £15 per item.
If the government is serious in its desire to change the culture of late payment then surely the opportunity to change legislation in favour of SME should be considered.
The government’s response – to instigate schemes to force the banks to lend more rather than addressing the problem eg. getting all Companies to settle their debts quicker.
In ACCA report Getting Paid highlighted that many companies do not place a high enough regard to the credit function mainly because there is no perceived benefit employing more resources to, so that its debts can be settled quicker. Many SME will no doubt have a very different view. £20,000 to a Large Company may be petty cash but to an SME it is likely to be the difference between trading and closing down.
As a radical suggestion instead of taking the easy route and watering our legislation down to comply with Europe why doesn’t it take the alternative route and allow SME the same penalty system HMRC uses. For example why not have an automatic penalty of say 10% for debts paid one day late rising to 30% if the debt is over 90 days, (plus the 8% over base interest). Harsh maybe but then is the intention to reduce the Late Payment Culture or to merely tinker at the edge?
The UK Governments Proposals can be read (
www.bis.gov.uk/assets/biscore/better-regulation/docs/t/11-775-transposition-guidance.pdf )
Responses must be made by 19th October 2012 to
Enquiries to: Andy Harrison, Policy and Strategy Team, Enterprise Directorate, Department for Business, Innovation & Skills; 1 Victoria Street, London, SW1H 0ET, Tel 020 7215 6032 E-mail
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