The Issues of Extended Payment Terms
From October large businesses (turnover £36m+ and/or 250 employees+) will be required to publish reports on their payment practices, in an effort to tackle the issue of late payments and extended payment terms that have plagued UK businesses (and indeed business across the world) for too long.
These companies will be required to publish details of their payment policies and practices on their website, updating every six months to highlight their ongoing performance. This can include:
- Standard payment terms and any changes from previous reporting
- Average time taken to pay suppliers (from invoice date)
- Reporting on invoices that have been paid by business, for example;
- Beyond agreed terms (and how far past agreed terms)
- The amount of late payment interest to be paid by the business to suppliers
- Dispute resolution processes
- View the full list at ICAEW website
Where this system may fall down is in the interpretation of what could be considered as ‘fair’ payment terms; according to legislation this can include up to 60 day payment terms, which could cause significant issues for many industries that rely on much shorted payment terms for their cash flow.
Poor payment practices have been heavily publicised over the past few years, with large companies (such as supermarkets) coming under fire for using ‘bullying’ tactics to back smaller suppliers into a corner in relation to payment terms. This new reporting will hopefully deter large companies from using poor payment practices with smaller suppliers, but I have to question how effective this will be and how consequences of poor payment practices or failure to adequately report will be enforced.
Our Improving Collection Performance Training can help you to develop credit management skills, including negotiation which can help greatly when discussing terms of contract with a larger company – book your place today.
