Government urged to rethink late payment legislation
Small businesses suffering from the double whammy of tougher borrowing opportunities from banks because of the credit squueeze, and delayed late payments from customers, are urging the Government to rethink their legislative approach to the latter in order to safeguard future cash flow. Not every business can afford invoice discounting or factoring in order to have a healthy inflow of cash, and small suppliers are reticent about adding interest charges to overdue bills as allowed under the Late Payments of Commercial Debts (Interest) Act of 1998 because they fear reprisals from large clients taking business elsewhere. It’s a bit like giving an eight stone man a pair of boxing gloves and inviting him into the ring with a heavyweight without a referee- there can only be one winner in that type of bout.
The 1998 Act doesn’t work, and large companies in particular are holding onto suppliers money for longer and longer (after all, it’s the cheapest form of finance). What can be done? Recent Interest rate cuts are helpful to businesses, but if a trade supplier’s money is in its bank account instead of in it’s client’s accounts, the need for additional bank borrowing may not exist at all.