Business Secretary Vince Cable has announced plans to force firms to publish information about their payment terms in a bid to shame big businesses into paying suppliers on time.
The plans have been formulated amid complaints from smaller firms that late payment of bills is crippling their cash flow, with the average business being owed £31,000, taking the total owed to more than £30bn last year, although this has come down from £35.5bn owed in 2012.
However, while the Government hopes that publishing information about their payment terms will shame big businesses into paying more promptly, it has refrained from imposing tougher measures, such as fining or naming and shaming bad payers, although these steps could be introduced if the latest ones prove ineffective.
Working with the Institute of Credit Management, the Business Secretary will introduce legislation, which may be included in next week’s Queen’s Speech to strengthen the voluntary Prompt Payment Code, which has already been signed by more than 1,500 large firms. The Code could involve an online rating system that highlights those companies that pay late.
Business groups have welcomed the news but are concerned that the measures may not go far enough, with a spokesman for the Federation of Small Businesses (FSB) saying the test would be whether the big firms that signed up the Code started to pay within 60 days, which they should be doing anyway under an existing EU directive.
Meanwhile, the CBI’s employers’ group believes that greater disclosure on payment practices could help but only if it is implemented flexibly, on a ‘comply or explain’ basis.
Suppliers have been able to charge interest on late payments since 1998, although few do so, as they fear it would be the death knell to their relationship with large customers.