News | Published February 03 2020

Late payments bill to help SMEs like DM Steelworks

On 21 January, Lord Mendelsohn, a Labour peer, introduced a bill in the House of Lords which sought to prevent late payments. Under the bill’s proposals, a statutory limit of 30 days would be set for all invoices and firms would be banned from charging suppliers in exchange for prompt payment.

Formed by a cross-party group of MPs and peers before Christmas, the bill marks a necessary step to tackle this growing issue.

According to research conducted by banking platform Tide, and reported in City AM, SMEs across the UK are chasing a combined £50 billion in late payments. On average, each SME is currently waiting on five outstanding voices, spending an hour and a half each day trying to receive payment. Collectively, this equates to 900,000 hours a day being wasted by companies chasing invoices.

The effects of this delay in payment can be stark. In 2016, the Federation of Small Businesses estimated that 50,000 SMEs collapse each year as a direct result of delayed payment. According to the same research, this costs the UK economy £2.5 billion every year.

Alongside setting a new statutory limit, Mendelsohn’s bill aims to solve this issue by strengthening the powers of the Small Business Commissioner, giving them the ability to fine those with the worst payment record.

Announcing the introduction of the bill, Mendelsohn said: “The recent huge escalation in outstanding payments shows that decades of promoting ‘culture change’ has only made things worse. This bill will tackle the issue once and for all with a package of measures that is operable, impactful and measurable.”

Writing in The Parliamentary Review, Don Mitchell, the managing director of DM Steelworks, laid bare the effect delayed payments can have. Referring to the regularity of larger firms imposing 45 to 60 day payment terms, Mitchell outlined the consequences: “As most supplier’s terms are 30 days from invoice, this can result in cash flow difficulties; payments are sometimes made to suppliers in advance of receipt from clients.

“In addition, some larger companies still make payments far later than the agreed payment terms, thereby stretching cash flow resources further.”

An impact on cash flow is not the only effect however, with Mitchell also detailing the impact on a business’s productivity. He wrote: “An associated effect we have seen when it comes to late payments is the loss of confidence should additional investment be required to continue with the contracted works or further project work. If payments were made sooner, this would boost productivity through an increase in confidence and trust across the board.”

Having completed its first reading, the general debate on Mendelsohn’s bill has not yet been scheduled. Businesses up and down the country will be willing it to pass swiftly.

Authored by

The Parliamentary Review

February 03 2020

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