Aldermore has backed the Department of Business Energy and Industrial Strategy Committee’s recent call for a tougher regime to tackle late payments.
The committee’s latest report found that long payment terms can cause problems for SMEs and that there is evidence that payment terms are getting longer.
The committee found that several high street companies it contacted have long payment terms. WH Smiths for instance has standard payment terms of 90 days and maximum payment terms of 120 days, Boots UK have standard payment terms of 75 days and maximum payment terms of 120 days, while Holland and Barrett, who did not reply to correspondence, have standard payment terms of 90 days.
This can mean that SMEs are exposed to costs through both long payment terms and when payments are paid beyond these terms. The Federation of Small Businesses (FSB) in June 2018 found that more than a third of small suppliers had had their payment terms increased over the previous two years, indicating what it characterises as “supply chain bullying”.
The committee said SMEs can also face other unfavourable terms. The FSB reported that 12% of SMEs it surveyed had been asked for a discount for prompt payment, 7% for retrospective discounting, 6% for a fee to remain on a suppliers list and 3% had experienced a discount being applied after goods and services had been supplied.
The report found that Boots UK’s standard terms include a 2.5% discount that they deduct “for all suppliers irrespective of size”, while Robert Dyas informed the committee that they included within their standard terms “a 2% settlement discount, with a policy of 0% for suppliers with less than £100k turnover”.
Carl D’Ammassa, group managing director for business finance at Aldermore, said: “The damaging impact of late payments to SMEs has been highlighted in recent years, and we welcome the Business, Energy and Industrial Strategy Committee’s move to shine a spotlight on this issue. However, we believe that further action is needed to address this and to ensure SMEs are paid fairly and on time for the work they do.
“We welcome the BEIS Committee’s recommendation of introducing a statutory requirement for companies to pay within 30 days, however to combat the issue further, we have recommended the introduction of a robust reporting system with a significant financial penalty incurred by those who fall below minimum standards. This will make the level of late payments specifically to SMEs clearer and highlight those regular offenders, preventing them from being able to hide these statistics in an average payment metric. The money collected from late payments fines should then be invested back into SMEs through a development fund, potentially overseen by the British Business Bank.
“Despite statistics in the Department of Business Energy and Industrial Strategy’s latest call for evidence showing that late payments practices are declining, it is essential that the Government continues to stamp out the UK’s bad late-payment behaviour and support British business.
“Our Future Attitudes survey has found that over half of all UK small businesses have had a client pay late within the last 12 months, with firms currently being owed, on average, over £34,000 as a result. For many businesses, outstanding payments amounting to this level could well be business critical if not resolved swiftly.”