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UK Contractors: Government needs to do more to help SMEs with late payments

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For many small business owners, such as Limited company contractors, receiving late payments from clients can have an extremely detrimental effect on their firm.

Latest news from the government has revealed new plans in order to tackle late payment and to ensure smaller firms are paid on time.

The Business Secretary is proposing new measures, so that larger firms publish information of their payment practices, and acting to remove barriers preventing firms from accessing invoice finance.

Plans to strengthen the Prompt Payment Code is also on the agenda, as the government aims to join forces with the Institute of Credit Management (ICM).

Business Secretary Vince Cable, said, “For too long too many large companies have been getting away with not paying their suppliers on time to maximise their profits. It is a small business that is suffering as a result and it needs to stop.

“The government has taken action to create a responsible payment culture but we need to go further.

Skills and Enterprise Minister Matthew Hancock, added, “I come from a small business background so I know how important it is to receive payment when it’s promised. The steps we’re taking today in response to the business community’s concerns will help to reduce the strain of late payment.

“Our long-term economic plan recognises the importance of small business and we are determined to make this country the best place in the world to do business.”

However, despite government plans to help more UK small businesses with receiving late payments, both the Professional Contractors Group (PCG) and the Association of Recruitment Consultancies (ARC) still have concerns.

Simon McVicker, Director of Policy and Public Affairs at PCG, said, “The plans laid out by the Government today are a clear step forward and it is encouraging to see that the Business Secretary recognises how important getting paid on time is for small businesses. However, talk of changing the ‘culture of payment’ among larger firms will only go so far in addressing the problem.

“In order for it to be effective, the Prompt Payment Code must be compulsory for large companies and it must include sanctions for the worst offenders.

Adrian Marlowe, chairman of ARC, said, “For far too long larger organisations including local and government authorities have forced suppliers to accept lengthy payment terms for services provided and products delivered. It has also been the case that lengthy agreed payment terms have not been adhered to, with the same suppliers being left with the dilemma of deciding to wait for overdue payment or to enforce the agreed terms.

“We question why any company should be entitled to delay payment to a supplier where the supplier is of labour or individual services and payment is based on hours worked. The client has the benefit immediately and the work should, therefore, be paid for promptly. Delayed payment can wreck the livelihoods of workers as can the potential collapse of the supplier they work through.

“We would, therefore, like to see more certainty and believe that this can only be achieved by regulation. We would also like to see the principle extended to recruitment vendors or recruitment process outsourcing organisations (RPO) which are involved in the chain of supply, such that they are obliged to pay their labour suppliers promptly and definitively without the ability to delay payment on a ‘pay when paid’ basis. Currently, RPOs have no incentive to agree short or even certain payment terms, rather the converse.”

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