WIREDGOV

Despite the majority of businesses agreeing and sticking to fair payment terms with their suppliers, we need to ensure that all companies have a culture of prompt payment, says the CBI submission to the Government’s consultation.

The national late payment debt stands at over £30 billion with the average business owed £31,000. With the economic recovery gaining traction and order books picking up, now is the time when working capital can become particularly stretched.

Matthew Fell, CBI Director for Competitive Markets, said:

“Most companies agree and stick to fair payment terms but we need to create a culture of prompt payment in all businesses.

“It’s unacceptable that many firms are being held back from growing and creating jobs because they are owed thousands of pounds.

“We want to see companies explain their supplier payment policies clearly on their websites. And we want to see the introduction of a target maximum payment term, with some built in flexibility for more complex contracts.

“Supply chains should be collaborative, so we must avoid a heavy-handed approach to regulating payment, which could actually drive custom overseas away from UK firms.”

To tackle this problem, the CBI is recommending:

• That all companies publish their supplier payment policies on a voluntary ‘comply or explain’ basis
• The introduction of a ‘target’ maximum payment term, with flexibility, recognising that a one-size-fits-all approach will not work, because more complex contracts may require different terms
• As part of the Prompt Payment Code, introduce an ‘upper tier’ for companies who wish to sign up to even higher standards, for example by committing to more detailed reporting on payment performance, or shorter timeframes
• That larger companies give clear guidance on their websites clearly stating how their payment process works and set up online finance platforms to simplify the payment process
• That the Government sets out clear guidance around the legal term ‘grossly unfair’ in contract law, so that businesses have greater confidence when negotiating payment terms.

The CBI warns against the unintended consequences of imposing new rules which would put the UK on an uneven playing-field internationally, otherwise contracts will simply be offered to overseas suppliers instead of UK firms.

Suggestions such as mandatory maximum payment terms, introducing an enforcement agency or blacklisting of suppliers all fall into this category and should be rejected.