Small businesses are suffering cash flow problems as a result of late payments, despite a government-backed scheme implemented to avoid this.
The Prompt Payment Code was designed to protect small businesses from late payers. Larger businesses can sign the Code as a promise that they will endeavor to make payments on time. However, a new survey has found that only 5% of small businesses believe the scheme is effective. More than half of respondents (54%) said it was ‘ineffective’ or ‘extremely ineffective’, and 41% didn’t know or hadn’t heard of the code.
Despite the implementation of the Prompt Payment code, 84% of small businesses said they had experienced late payments of 30 days or more. Of these, 72% had waited 60 days to get paid and 57% had waited 90 days or more – that’s around three months.
John Allan, national chairman of the Federation of Small Businesses, said “Late payment is a major headache for our members. It can be the reason a small business makes it or breaks it.”
“We want the Prompt Payment Code to be tougher. Firstly so that it can penalise businesses signed up to it that don’t pay on time. Secondly to ensure firms that are signed up don’t change their payment terms to the detriment of their suppliers.”