Monday 7th January, 2013

The Government has called time on the escalating problem of late payments to SMEs by warning all FTSE 350 companies that they have one month to sign up to the Prompt Payment Code or face being named and shamed. Since the start of the recession, the situation has gone from bad to worse, with some companies like Sainsbury's facing critisism by increasing their payment terms - in their case from 30 to 75 days. Others have increased theirs by considerably more.

In their defence, they claim that they are simply bringing themselves into line with their competitors, but as Phil Orford, Chief Executive of the Forum of Private Business says:

"Asking any business to wait half a year for payment is not just morally questionable, it's almost certainly damaging to those on the receiving end."

Many large corporates are now sitting on large quantities of cash, which while understandable - can cause irreparable damage to their supplier relationships. Take Balfour Beatty for example - a 200 DPO rate caused one of their suppliers to cut their ties with the company. The Chairman said:

"We’ve done 80 projects for them so this hurts us a lot. I’d love to work for them again but we just can’t take the risk.”

With an estimated average of 41 days longer for payment than agreed - the Government's re-emphasis on the Payment Code comes as a welcome relief. Who, I wonder will be named and shamed - and if they are - will they care enough to change?