Payment Terms UK is Legislation Needed?

Many accounts departments across the United Kingdom have a constant battle every working day of chasing payments. Payment terms across the UK vary from industry to retail hugely and having spoken to customers recently some are not paying or playing fair.

Delaying payments for many large businesses seems to have become the norm; with supermarkets and large construction businesses using their suppliers like a bank. Can you imagine being a company supplying products to a large retailer, then one hundred and twenty days later they pay you for your product or services?

Payment Terms UK Bad Practice

In the news at the time of writing this is Carillion who it seems spent many years not only delaying payments to their contractors. They also made arbitrary decisions not to pay the full amount agreed for the work completed; taking some sub-contractors to the point of no return.

In the 21st century, how are practices like this acceptable? Especially when you consider that the highly successful German economy has legislation in place ensuring that creditors are treated correctly and in the main, the accepted payment period is thirty days from receipt of goods.

Penalties are applied to businesses that do not pay on time and even extended payment terms are scrutinised and unlawful if they are seen as grossly unfair to the creditor. If everyone had reasonable payment terms of thirty days or less, it is possible our economy would thrive and prosper far quicker.

Payment Terms UK Change Could Mean So Much

Imagine if you can, business not having to pay interest on overdrafts forced by constantly delayed payments. The same business then becomes more profitable, they can then pay employees better wages, so people have more money to spend. Going back to the question of Carillion and others who operate in the same way; the only people to benefit from their way are those that are paid the big bucks to run it, and do it badly.

Well-run businesses reward their staff because they can, this applies to Besseges (Valves, Tubes & Fittings) Ltd. We choose not to deal with companies who constantly pay us outside our payment terms, for that reason we are a secure and profitable business. If our business model was applied to other companies in other sectors, the outlook of the UK would change in my opinion.

If everyone refused to deal with bad payers, the working population could benefit and maybe words like working poverty would be consigned to history. Although it isn’t always the case with a world that does contain unscrupulous people; employers must be forced to reduce what they offer as wages. This is a direct result of paying their bank interest on what should be unnecessary overdrafts. Contractors’ standard reason for wanting extended payment terms is the fact that larger businesses force them to.

Payment Terms UK Government Intervention

The issue of late payments though is so entrenched in UK industry and retail that resolution will never be found from within. If the likes of ASDA continue to be allowed to pay their suppliers at 120 days and the construction industry penalises its contractors for doing a great job. Payment terms in the UK will aid in the stagnation of the economy and the investment in people.

For this reason, I believe that the only resolution possible is from the UK Government, European legislation must be enforced to protect small and medium-sized businesses from larger companies who use them as a bank. In addition, and as a precursor to this, big businesses and large retailers should be compelled to publicise their payment terms. This can be done without revealing their suppliers or contractors and will highlight to the wider public the way they conduct their business.

What this will also do is inform the industry what to expect if they take on these businesses as customers. Maybe as a result of a policy like this, many small and medium-sized businesses can make an informed choice on whether to pursue relationships with slow payers. Or those in some sectors that offer reduced payments to their already cash-strapped sub-contractors, a heinous practice that should be made illegal.

Payment Terms UK Political Failure

It has been clear from recent posts on social media that politicians have suddenly woken up to the fact that they have failed to look at the issue of payment terms across many industries. I have read many posts on Twitter on the subject, but the truth is these same politicians in the past have backed businesses like Carillion; without even looking at how they do business.

The truth is business has been behaving the same way from the beginning of the 21st century and probably before that. Carillion’s failure and the fallout associated with it sadly highlights the political failure of local to national politicians. Because of this, those same politicians have the opportunity to change what happens in the future.

The enforcement of even present European legislation would reduce the cash-flow issues of small and medium businesses, and force larger businesses and corporations to treat their suppliers with more respect. The legislation presently in force makes extended payment terms illegal if they are deemed grossly unfair to the creditor. For those that don’t agree with the opinions in this blog, feedback is welcome and your reasons why can be included in our comments section.

Disclaimer: Information correct at the time of publishing (June 2018) but is subject to change. E&OE.