THE BLOG

Prompt Payments - A Two-way Street to Economic Recovery

30/08/2013 17:23 BST | Updated 29/10/2013 09:12 GMT

Cash flow is the lifeblood of any business and keeping track of it is as important to the CEO of a major business as it is to a sole trader.

Anything that disrupts the flow of money in, and money out of the business can have a devastating effect. This is particularly true for small and growing companies, since any delays in getting cash into the business could spell disaster.

Research by The Federation of Small Business reveals that three quarters of their members have experienced late payment problems. This includes ten per cent who were waiting for payments of more than £35,000.

To put that number in context, in a 2012 survey of 300 SME owners, thirty five per cent said that incurring a late payment of £20,000 would be enough to put them out of business.

Knowing when invoices will be paid is vital to SME owners, allowing them to accurately forecast their plans for the coming months. By removing uncertainty around inbound payments, they are more able to focus their energy on growth.

If the UK economy is to recover with gusto, it will do so through the success and growth of its small and medium businesses and we cannot afford for them to fall foul of late payments.

This is why it is vital that big businesses do everything necessary to ensure that the small companies they are buying from are paid without delays.

The Prompt Payment Code (PPC) is a government-led initiative to encourage big businesses to support SMEs by paying them on time. Signatories of the code commit to paying suppliers according to the terms laid out in the contract. This is exactly the level of commitment that is needed to ensure late payments are dramatically reduced and is why Intuit is delighted to become a sponsor of the Code.

Big businesses don't necessarily pay late on purpose. The issue is that big firms have more bureaucracy, so invoices take longer to get from A to B - it's not always a case of big companies bullying the little man.

The PPC encourages big businesses to recognise that red tape and administrative delays can have a huge impact on SME suppliers, so they are encouraged to do everything possible to streamline the payment process to prevent this happening.

But it is also crucial that SMEs do their bit to help ensure they get paid on time. They need to do everything possible to make it easy for their debtors to pay them quickly, such as: avoiding basic errors to ensure invoices are accurate and sent on time; quoting the correct Purchase Order number when required; and knowing who owes them, when payment is due and chasing it up promptly.

Putting the correct invoicing and collection procedures in place may not be the sexiest part of being an entrepreneur, but getting this part of business management right can mean the difference between success and failure.

The Prompt Payment Code is a welcome recognition from government that the challenge around late payments must be overcome and the more big businesses that sign up to the code, the better chance we have of ensuring the great potential of our SMEs is not killed off by late payments.

However, speeding up payments between businesses is a two-way street and both big businesses and SMEs need to do their part to reduce late payments and put the UK on the road to economic recovery.