Small businesses forced to wait months for payments

Many SMEs are facing potentially crippling waits for payments. A new study by Tungsten Network has found that just over one in ten (12%) of small and medium-sized businesses regularly have to wait for 90 days or more under their customers’ payment terms. 3% of SMEs are forced to wait for four months or 120 days.


Many SMEs struggle to span the working capital gap between completing a job and getting paid. This can lead to severe cashflow problems and the knock-on effects can lead to serious issues, potentially leaving a business in need of business turnaround assistance.


These long delays in payment are still occurring despite the setting up of the Prompt Payment Code Advisory Board in 2014 with the remit of supporting and advising on the strengthening of the Prompt Payment Code. The Prompt Payment Code encourages businesses to pay their suppliers within a maximum of 60 days, with 30 days being seen as an industry norm.


The Code has recently been strengthened and from April 2016 signatories will be required to start reporting on their payment practices. The maximum payment terms will also come into force, with signatories to seek to pay within 30 days, and required to pay 95% of invoices within 60 days, barring ‘exceptional circumstances’.


The Code is not compulsory though. The Prompt Payment Code does have the backing of the UK Government and a number of organisations, including the British Chamber of Commerce (BCC), the Confederation of British Industry (CBI), the Forum of Private Business (FPB), The Federation of Small Business (FSB) and the institute of Directors (IoD). Many large corporations, as well as smaller businesses have signed up to it but it is entirely voluntary and industry-led.


When added to the related but separate problem of late payments (i.e. payments received later than stipulated in a contract) and unpaid bills, unreasonably long payment terms can place a real burden on SMEs that might already be struggling with their cashflow.


By Phil Smith


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