Government Sceme to Encourage Prompt Payment is Doomed to fail

The Government’s launch of a voluntary code on payment terms to encourage the prompt payment of bills between businesses as firms across the UK battle to survive the downturn is unlikely to spark a genuine move away from late payment culture in the UK, warns commercial credit agency Graydon UK.

The voluntary code, launched this week under the leadership of Lord Mandelson, aims to prevent companies from reneging on agreed payment terms. This practice is commonplace among large corporate in the UK, with Alliance Boots and Tesco amongst the worst offenders.

The announcement follows the recent publication of research conducted by the Forum of Private Business (FPB) revealing that nearly two thirds (61 per cent) of small firms in the UK are encountering greater difficulty managing cashflow compared with the first week of November.

However, Martin Williams, Managing Director, Graydon UK, is not convinced that the proposals will turn the tide of the late payment of suppliers in the UK, particularly in instances where small firms are the victims.

Martin Williams said: “There’s no doubting the positive sentiment which lies behind the Government’s introduction of a voluntary code but it is highly unlikely that this latest move will make a tangible difference when it comes to helping small companies manage their cashflow.

“Long before the economic crisis really began to bare its teeth, many large corporate were habitually using their purchasing power to squeeze their suppliers through late payment, even though they had plenty of cash in their coffers to pay the bills when they finally chose to.

“The difference now is that as the economic situation has worsened, even large companies no longer have the readily available cash required to pay bills and are failing to pay trade invoices simply because they can’t do so. This week’s Government announcement alone won’t be sufficient to remedy this situation.”

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