Prompt payment culture vital for economic recovery, UK

A prompt payment culture is crucial for the UK’s economic recovery, says the Confederation of British Industry (CBI) in a submission to a Government consultation.

The CBI emphasized that most companies agree and adhere to fair payment terms with their suppliers.

Suppliers are owed more than £30 billion ($49.3 billion) in overdue invoices, an average of £31,000 ($50,940) per company.

As the economic recovery gathers steam and order books swell, working capital is now especially vulnerable to becoming stretched.

CBI Director for Competitive Markets, Matthew Fell, said:

“Most companies agree and stick to fair payment terms but we need to create a culture of prompt payment in all businesses. It’s unacceptable that many firms are being held back from growing and creating jobs because they are owed thousands of pounds.”

“We want to see companies explain their supplier payment policies clearly on their websites. And we want to see the introduction of a target maximum payment term, with some built in flexibility for more complex contracts. Supply chains should be collaborative, so we must avoid a heavy-handed approach to regulating payment, which could actually drive custom overseas away from UK firms.”

To address this problem, the CBI recommends:

  • All businesses should publish their supplier payment policies on a voluntary ‘comply or explain’ basis.
  • A ‘target’ maximum payment term should be introduced. This should be flexible, bearing in mind that a one-size-fits-all approach is unworkable, because more complex contracts may require special terms.
  • The introduction of an ‘upper tier’ for businesses that wish to subscribe to even higher standards, as part of the Prompt Payment Code. For example, by agreeing to adhere to more detailed reporting on payment performance, or shorter payment terms.
  • Larger businesses should state on their websites clearly how their payment process works, “and set up online finance platforms to simplify the payment process.”

Resist the temptation to over-legislate

The UK Government should clearly set out guidance on what the legal term ‘grossly unfair’ in contract law means, so that firms have greater confidence when negotiating terms of payment.

The government must refrain from imposing new legislation which could put the UK on an uneven playing field internationally, otherwise clients will seek out foreign suppliers instead of UK ones.

Fell wrote “Suggestions such as mandatory maximum payment terms, introducing an enforcement agency or blacklisting of suppliers all fall into this category and should be rejected.”