Firms urged to follow public sector example and pay promptly

Large companies are being urged to follow the example set by the public sector in reducing the time taken to settle invoices.

The latest official figures show that 19 out of 20 invoices to central government are now paid within 10 days. That’s an improvement of 24% since November 2008. It means that £73bn has been paid to private companies within ten days by the Government since June last year.

Local authorities have also improved their payment times. Figures compiled by the Forum of Private Business show that they now take only 18 days on average to settle invoices, with 42% of invoices paid within ten days.

The private sector, however, is trailing far behind although there have been some improvements.

Lord Davies, the Minister for Trade, Investment and Small Business, has urged bigger companies to take the matter more seriously. Only 22 have so far signed up to the Government’s Prompt Payment Code.

There are a total of 640 other signatories to the code which requires companies to settle within the agreed terms.

Lord Davies said: ““Late payment creates uncertainty in the supply chain and carries a significant cost to UK business. In 2009 it is anticipated that UK business will pay approximately £180 million in interest on overdue payments. That’s £180 million of potential investment lost. Being a Code signatory sends a very simple but very powerful message – we pay on time.”

It would be nice to think that the private sector will heed the advice but in reality, many companies will continue to delay payment for as long as possible. Firms will need to be proactive in ensuring that their cash flow remains healthy.

It is important to deal with potential problems quickly before debts begin to mount up. Early action in the form of a solicitor’s letter is usually enough to ensure a speedy settlement. If it doesn’t then there are a number of legal steps that can be taken to rectify the situation before things get out of hand.

Creditors can charge interest and impose penalty payments on overdue invoices. This is often more than enough to cover the legal costs of recovering the initial debt.

 

March 2010

The views expressed in this article are those of the article contributors, for which Judge & Priestley LLP accepts no responsibility. Readers should take appropriate legal advice before acting on any issues raised