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Prompt payment will help smaller businesses

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The government is urging very large companies to make sure that smaller suppliers are paid on time.

Lord Davies, the Minister for Trade, Investment and Small Business, said that large, private sector firms should take the lead offered by those public sector bodies that have improved their levels of prompt payment.

According to new figures, 85 per cent of central government invoices are now paid within ten days, a rise of 24 per cent since November 2008.

The wider public sector has also seen improvements in payment times. The Forum of Private Business (FPB) reported that the average payment time for local authorities in England is now 18 days, with 42 per cent of all invoices paid within ten days.

However, Lord Davies called on the private sector to make even more efforts to pay smaller firms by the agreed date, particularly in the current economic climate.

So far 22 FTSE 100 companies have signed up to the government’s Prompt Payment Code, launched in December 2008.

The minister said: “Late payment creates uncertainty in the supply chain and carries a significant cost to UK business. In 2009 it is anticipated that UK business will pay approximately £180 million in interest on overdue payments. That’s £180 million of potential investment lost.

“Being a Code signatory sends a very simple but very powerful message – we pay on time.”

An analysis carried out by Experian, the credit referencing organisation, indicated that invoices are now indeed being settled slightly earlier.

On average firms took 20.99 days over the agreed date to pay their bills last month compared with 21.54 days in September and with 23.20 days in October of last year.

But the research also suggested that suppliers themselves can help speed up payments by invoicing correctly and on time.

Matthew Goodman, the FPB’s policy representative, commented: “Keeping cash flowing is the biggest concern for many small- and medium-sized businesses, and, logically, best practice should start at the top of the supply chain. That is why we believe that the FTSE 250 should demonstrate their leadership in the market and become signatories to the Prompt Payment Code.”

Mr Goodman added, though, that sometimes busy small businesses experience problems with the basics of good financial housekeeping, such as checking out potential customers, invoicing on time and chasing payments, a failing that can push up costs and lead to a greater reliance on finance.

He concluded: “That’s why we are working to make sure that there is protection and better training out there for businesses struggling to keep track of their cash-flow.”

Philip King, chief executive of the Institute of Credit Management, argued that prompt payment is paramount in maintaining a healthy and productive relationship between customer and supplier.

Mr King said that it was encouraging to see the first tangible signs that the government’s initiatives on prompt pay are beginning to bear fruit.