The Confederation of British Industries (CBI) are right when they say that despite the majority of businesses agreeing and sticking to fair payment terms with their suppliers, we need to ensure that all companies have a culture of prompt payment. So says the CBI in its submission to the Government’s consultation on the matter.

pentopaperI was staggered when I read that the national late payment debt stands at over £30 billion with the average business owed £31,000. The CBI say that, with the economic recovery gaining traction and order books picking up, now is the time when working capital can become particularly stretched.

To tackle the problem of late payment, the CBI is recommending:

  • That all companies publish their supplier payment policies on a voluntary ‘comply or explain’ basis.
  • The introduction of a ‘target’ maximum payment term, with flexibility, recognising that a one-size-fits-all approach will not work, because more complex contracts may require different terms.
  • As part of the Prompt Payment Code, introduce an ‘upper tier’ for companies who wish to sign up to even higher standards, for example by committing to more detailed reporting on payment performance, or shorter timeframes.
  • That larger companies give clear guidance on their websites clearly stating how their payment process works and set up online finance platforms to simplify the payment process.
  • That the Government sets out clear guidance around the legal term ‘grossly unfair’ in contract law, so that businesses have greater confidence when negotiating payment terms.

The CBI warns against the unintended consequences of imposing new rules which would put the UK on an uneven playing-field internationally, otherwise contracts will simply be offered to overseas suppliers instead of UK firms. Suggestions such as mandatory maximum payment terms, introducing an enforcement agency or blacklisting of suppliers all fall into this category and should be rejected.

I particularly like the suggestion of a “comply or explain” policy.

The CBI’s press release is here.

Martin Pollins
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