Cash flow worries as a result of increasing late payments are causing small businesses the most headaches, according to the latest Economic Downturn Panel survey carried out by the Forum of Private Business (FPB).
 
Almost a quarter (23%) of respondents to the survey selected late payment and, subsequently, poor cash flow as their ‘key issue’ – more than those who voted for a lack of sales (20%), and complying with health and safety regulations (11%).
 
Even declining bank lending was deemed to be less of a concern than poor payments. Banks’ tardy decision making was chosen as the major issue by 6% of respondents, and the steep cost of bank lending by 4%.
 
In all, 42% of FPB members who took part in the survey reported a deterioration in prompt payments from customers – typically bigger businesses – compared to just 3% who said there had been an improvement. A total of 56% said there has been no change from previous months.
 
The FPB, which ‘names and shames’ poor payers in its Late Payment Hall of Shame, is working with the Government to find solutions to payment problems, including encouraging companies to sign up to the new ‘prompt payment code’.
 
“Small firms’ cash flow is being decimated by credit restrictions and declining trade. Our research suggests that poor payment, which has always been a problem, is now threatening the very survival of many businesses,” said Phil Orford, the FPB’s Chief Executive.
 
“We want the UK’s biggest companies to take the lead and pledge to pay their suppliers on time by signing up to the Code in order to set in motion a consensus of prompt payment through the supply chain.”
 
Already, under the Late Payment of Commercial Debts (Interest) Act 1998, small businesses have a Statutory Right to Interest (SRI), meaning they can in theory charge for late payments. However, few take advantage of this or are prepared to speak out publicly out of fears that large companies will simply take their business elsewhere.
 
In addition, many larger companies impose unilateral changes on their smaller suppliers' terms and conditions, often mid-contract and with little warning, effectively sidestepping the redress provided by the late payment legislation.
 
“Suppliers receiving underpayment on deliveries made under contracts agreed before the date of any letter notifying them of a change in terms and conditions should know they are automatically be entitled to interest under the terms of their original contracts or under the LPCD(I) Act,” said Stuart Blake, the FPB’s Adviser on Late Payment.
 
“What is more, if their entitlement stems from the LPCD(I) Act, they will be entitled to a late payment penalty charge as well, assuming their contract postdates August 2002."
 
"Suppliers should be careful about fulfilling orders received after this letter was sent, since to do so may indicate acquiescence, and therefore ‘acceptance', of the new terms the letter seeks to impose."
 
He added: "The current process for recovering such debts is both expensive and cumbersome, being based on systems designed for the resolution of disputes and legal complexities rather than the simple administrative task of recovering uncontested debts.
 
“We need a change to the culture of poor payment so that there is mutual agreement that paying promptly should be best practice, which is what the Government and the FPB are trying to achieve.”
 
Other findings of the Economic Downturn Panel survey are as follows:
 
Access to finance
 
Just 5% of business owners surveyed in September said access to finance has Improved, while more than four times as many (22%) said it has deteriorated. The remainder reported no change.
 
The terms and conditions of loans improved for just 2% of respondents and declined for five times as many (10%). The average interest rate for lending is 6.5%, considerably above the Bank of England’s base rate of 0.5%.
 
No one saw an improvement in the terms and conditions of loans, while 17% said they have declined and 83% that there has been no change. The average interest rate for overdrafts is 6.8%, again considerably above base. Further, 5% reported demands for additional security.
 
Market health and competition
 
Competition within markets declined according to 31% of respondents, stayed the same for 61% and improved for just 8%. However, the markets themselves improved for 39%, stayed the same for 36% and deteriorated for 25% of businesses surveyed.
 
Business viability
 
While 28% of respondents said the ‘viability’ of their business has improved, 22% said it has declined and 50% reported no change.
 
Government support
 
No one said that support from the Government has become better, while 22% reported a decline and 78% no change from previous months.
 
Bank support
 
Just 12% of respondents said support from banks has improved, while 29% reported a decline and 59% no change.
 
Risk management by lenders
 
In all, 7% of respondents reported an improvement in risk management undertaken by financial services organisations, while 23% said it has become worse and 70% that there has been no change.
 
Cost of complying with regulations
 
No business owners surveyed said the cost of complying with regulations has improved, a quarter (25%) said it has deteriorated and the remainder that there has been no change.
 
Media coverage of the economic situation
 
While 9% of respondents said the accuracy of media coverage has improved, almost double (17%) believe it has become more inaccurate. The remainder reported no change.
 

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