Despite governmental efforts to enforce a code for prompt payment, the proportion of SMEs suffering from the chronic issue of late payments is still rising at an alarming rate.

A recent industry study has revealed that more than half of UK businesses are now having to wait in excess of 30 days for payments from buyers, adding greater urgency to government plans to tackle this pressing problem. The research has shown that the number of SMEs suffering from late payment jumped by nine percentage points in the second quarter of 2015 against the corresponding period of last year.

The UK’s five million smaller firms are now owed an astonishing £26.8 billion in overdue payments.

On a regional level, businesses in the West Midlands, Yorkshire and Humberside are suffering the most, with those dealing with late payments in the North East doubling from 25 per cent in the second quarter of 2014 to 50 per cent in 2015.

The Forum of Private Business (FPB) has stated that the Government should “faithfully transpose” the EU Directive on late payments. This would mean that businesses could automatically claim interest on late payments, charging a minimum fee of £36 for costs incurred.

There is no doubt that the impact of such claims on public sector organisations and large corporates could be financially very significant as well as being damaging reputationally. However, there is still a major question mark as to whether legislation will result in driving more liquidity into our SME community.

Supplier payment incentives critical

Suppliers already have recourse to legislation that entitles them to late payment penalties, although in reality very few choose to go down this route for fear of impacting upon valued relationships and losing future business opportunities. Roberto Moretti, CEO at Oxygen Finance Ltd believes that this issue can only be addressed effectively where participation for both the buyer and supplier is incentivised:

“The strategic introduction of an early payment programme is highly beneficial for a buying organisation, not just in terms of the additional income from early payment rebates but also through improved payment efficiencies, enhanced reputation for social responsibility and the positive working relationships that will be fostered with suppliers.

The buyer-seller relationship is more than a matter of repeated commercial transactions. A strong relationship with a valued customer gives a supplier the much-needed cash flow and confidence to plan ahead, invest, expand and create jobs, contributing to the local and wider economies. Given that the issue of late payment to SMEs is particularly marked in the North of the UK, the opening of our new Northern office is very timely indeed.”