New traffic light system to highlight late payers

07/02/2019

The Small Business Commissioner has called for a new traffic light warning system to be introduced following the latest damning figures regarding the payment habits of the UK’s largest companies.

Despite legislation requiring all large companies report on their payment practices twice a year being introduced in April 2017, it has been revealed that 65% still pay their suppliers on average more than 30 days after the invoice was raised.

The research, which was conducted by Lloyds Bank Commercial Banking in partnership with the Small Business Commissioner, also found that 21% pay, on average, after more than 50 days. Across the UK, the average time is 37 days.

In light of this the Commissioner, Paul Uppal, believes a traffic light system will help small businesses to identify the worst offenders quickly, enabling them to make more informed decisions about who they supply.

Mr Uppal said: “There has been a requirement since April 2017 for large companies and limited liability partnerships (LLPs) to report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices.

“Some businesses have now created a number of reports whilst others still have yet to produce a single report. Our ambition is to help small businesses make more informed choices when deciding which larger businesses they are going to trade with.

“A traffic light system would be a simple and effective visual way of highlighting which larger businesses are paying promptly and are working in partnership with their supply chain.”

Is that the answer?

Although this warning system would help smaller businesses to identify the worst payers quickly, it does little to tackle the cause of the issue.

For one, it assumes small businesses have a choice over which businesses they trade with. Yet the reality is that it is difficult for many to turn down a potentially lucrative contract with a large firm, which could account for a significant proportion of their turnover. Often, the threat of late payment is deemed as a necessary risk.

Likewise, small businesses are often forced to accept their customer’s terms to be able to supply them, which stipulate longer credit terms.

And while the payment reporting regulations are a step forward, giving businesses visibility over who pays when, it appears that any reputational damage this may cause larger companies isn’t enough of an incentive to clean up their act.

“Our initial findings indicate that almost two-thirds of payments are likely to be owed to smaller businesses at any time,” Mr Uppal continued. “This is money that could be used to grow smaller businesses and generate tangible economic activity.

“Instead it is stuck on the ledgers of large businesses doing nothing.”

Do you think traffic light warning system is a good idea? Will it make any difference to your business? Please share your thoughts in the comments section below.