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Call for culture of prompt payment

All companies should have a culture of prompt payment, says the CBI in its recent submission to the UK Government’s consultation on building a responsible payment culture.

The national late payment debt stands at over £30 billion, with the average business owed £31,000, says the CBI. With the economic recovery gaining traction and order books picking up, the industry body highlights that now is the time when working capital can become particularly stretched.

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

To tackle this problem, the CBI has made a number of recommendations, including:

  • That all companies publish their supplier payment policies on a voluntary ‘comply or explain’ basis.
  • The introduction of a ‘target’ maximum payment term, with flexibility, recognising that a one-size-fits-all approach will not work, because more complex contracts may require different terms.
  • As part of the Prompt Payment Code, the introduction of an ‘upper tier’ for companies who wish to sign up to even higher standards, for example by committing to more detailed reporting on payment performance, or shorter timeframes.
  • Larger companies should give clear guidance on their websites clearly stating how their payment process works, and set up online finance platforms to simplify the payment process.
  • That the Government sets out clear guidance around the legal term ‘grossly unfair’ in contract law, so that businesses have greater confidence when negotiating payment terms.

The CBI has also warned against the unintended consequences of imposing new rules that would put the UK on an uneven playing-field internationally, otherwise contracts will simply be offered to overseas suppliers instead of UK firms.

Suggestions such as mandatory maximum payment terms, introducing an enforcement agency or blacklisting of suppliers all fall into this category and should be rejected, says the CBI.

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