It's time to get tough on late payment to ease the current cash-flow crisis, warns Federation chief
Tough measures are needed to protect small businesses from the late paying habits of their customer clients, a business lobby group has warned.
The call comes just weeks after Chancellor Alastair Darling pledged in last month's Budget that 80% of invoices submitted by small firms will be paid within five days.
UK-wide, late payment by businesses and organisations in the private and public sectors is estimated to result in the closure of 4,000 businesses every year - and a dramatically reduced cash flow for those who manage to cling on.
The Federation of Small Businesses (FSB) said cash flow was cited as the biggest problem facing 52% of Northern Ireland small businesses and tough legislation was needed to prevent big firms effectively using small businesses as a source of credit.
Jack Eccles, chairman of the FSB in the north east of Northern Ireland, owns an IT support business with a large number of private sector clients. He said his company regularly faces the problem of late payment and is owed between £15,000 to £20,000 in payments which have been late for between 14 and 90 days.
"There are companies which pay us by standing order, which isn't a problem. But the problems arise when you do work, invoice the clients, and wait. The 30 days come and go. They might then tell you they haven't received your invoice, or that the cheque's in the post.
"Then suddenly, it's 40 days late and they say: 'We can't pay you. We haven't any money because we haven't been paid in time because our clients have gone into administration'."
Mr Eccles said the situation was worse now then ever. "People just don't have the money, because cash flow is an issue for nearly every business.
"We have people calling in people's loans and overdrafts and things like that. Maybe one solution is some form of enforcement so that everybody pays their bills on time." He said businesses should apply to all their bills the thinking they apply to their liabilities to Government. "We have to pay our VAT, tax and National Insurance on time, regardless of whether we're a small business or not, because if you don't, the Government can basically shut you down. Someone like me often has to resort to personal credit cards, loans from family or savings to pay up. Can't we make businesses take the same attitude to all their bills?
"Whenever times were good and everybody had good sales, it wasn't as bad. But now we have had companies closing down and people losing their jobs and it has been bad."
In 2008, the Government urged councils to pay invoices within 10 days. But a study last November by the Forum of Private Business (FPB) found councils in Northern Ireland were the slowest in paying suppliers' and contractors' bills. Councils in the province took an average of 37 days, compared to the UK average of 19 days. Just 11% of invoices were paid within the recommended 10 days.
Belfast City Council was found to have been the slowest at paying up, taking an average of 56 days.
Meanwhile, a spokeswoman for Belfast City Council today said it had improved its record on bills: "The council's target for payment of bills to suppliers is 30 days. However, our policy is to pay suppliers as and when the invoice has cleared all necessary checks in relation to quantity, value and validity, regardless of payment terms.
"We have reviewed our processes and procedures to improve the time taken to pay suppliers and keep these under ongoing review.
"The most recent figures for the month of March 2010 show that on average the council takes 23 days to pay invoices, with 73% by value paid within 30 days.
"These statistics are monitored monthly in an effort to ensure all our suppliers are paid as promptly as possible."
FSB policy chair Wilfred Mitchell said: "The FSB wants to see the Government take leadership in this area by introducing a social clause in all national, regional and local government contracts.
"This would guarantee that the speedy fashion in which the Government pays the lead contractor is passed down the chain to all sub-contractors.
"It would also help the cash flow of small sub-contractors and give confidence to small businesses that they will be paid in time.
"Where lead contractors are failing to adhere to the social clause and pay sub-contractors late, they should be fined and given warning that persistent failure will lead to loss of contracts in the future.
"Where small businesses are contracted by national, regional and local government agencies and payment terms are not set, a maximum of 30 days should be applied. This is set out in the EU's working paper on late payments in commercial transactions."