Accounts & Tax

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Opinion

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Without doubt, one of the most frustrating things about running a business is dealing with late payments.

Small amounts can build up quickly and have a big impact on SMEs

Despite this being the season of goodwill, the Scrooge-like culture of businesses not paying bills will take the gloss off anyone’s Christmas.

One of the plus points when coming out of a recession is that business leaders continue to think smart about how they run their enterprises, keep things tight, but take a more cautiously optimistic approach to the future. 

On the flip side, there are firms that extended payment terms during the recession and have continued to apply this disgraceful practice to our improved economy. 

According to some research by a company called Tungsten a few months ago, nearly a quarter of small and medium-sized businesses (SMEs) in the UK are under pressure because of the late payment on invoices.

This research reckons that the average SME is owed about £40,000 in unpaid invoices with more than half of it overdue. Applied to the UK’s 5.2m SME businesses, the total owed could be an eye-watering £212bn.

The impact late payments have on SMEs cannot be underestimated, especially for those that are VAT registered and don’t operate on cash terms, but pay tax based on the value of the invoices issued and received rather than the payments received and made.

Some firms end up relying on overdrafts to keep things going or become offenders by delaying paying bills and staff. All this does is create a domino effect where the pain is passed on and no one in the business community is immune.

Read more from Charlie Mullins:

I was hopeful that when the government-backed Prompt Payment Code was launched it would be a step in the right direction to wipe this practice from UK businesses. It is designed to encourage better treatment of suppliers, but perhaps the rules need tightening further and "encourage" is replaced by "required".

To my mind, late payment is no different to failing to pay staff the minimum wage. Great strides have been made to name and shame those businesses, and perhaps the same should be the case for the worst offending late payers. Perhaps the threat of a decent fine – with strict 30 day payment terms of course - will make offenders think twice!

After all, it’s in the government’s interests to make sure the cash that is the lifeblood of business is injected into SMEs. Without it, firms will cut jobs, cancel investments and ultimately impact on the amount of money that’s received by the Treasury. 

Money makes the world go round, but the planet could be in danger of falling off its axis if big business keep the cash squirrelled away and fail to pay suppliers what each are owed.

It would be a fantastic Christmas gift for all the small businesses up and down the land to come back in January to find accounts swelled by all the cash owed. Unfortunately, while Christmas is supposed to be a time of miracles, I think that this is probably a wish too far, but we can always hope.

This is my last column of 2015 and I want to thank all the readers of Real Business and everyone who have tweeted me about what I’ve written for this fantastic publication over the last year. Have a fantastic Christmas and a prosperous and profitable 2016.

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