Despite the government’s pledge to pay its suppliers faster, local councils are failing to meet their targets, according to a report from the Asset Based Finance Association.
ABFA says contractors are waiting more than 40 days for payment from some councils; this might not sound so long compared to some private-sector companies’ payment terms, but it is much, much longer than the government’s targets.
From October 2008 onwards, local councils were told to settle their invoices within ten days wherever possible, and in July 2010 a target was set for central government to pay 80% of bills within just five days.
Overall, local councils are currently averaging 17 days for payment – and although this is longer than the central government target, it is probably acceptable for most of their suppliers.
But as with any supply chain cash flow delays, the waiting times start to stack up for subcontractors, including many SMEs who take on work on behalf of the council’s main contractor.
First the main contractor must receive payment, and only then can the subcontractors begin their wait for payment in turn; as a result, ABFA found firms with turnover of less than £1 million typically wait more than 70 days to receive their money.
Jeff Longhurst, chief executive of the ABFA, said: “Smaller businesses brought in as subcontractors on projects for local councils are particularly vulnerable to delays in payment. As the third link in the payment chain, they often end up waiting months for their invoices to be settled.
“Local authorities need to make sure they are adding as little as possible to that wait by paying as promptly as possible, and also in persuading their main contractors to pay their subcontractors quickly.”
Meanwhile, ABFA also found incidences of councils paying their invoices after more than 30 days – in breach of the recently introduced EU Late Payments Directive, and putting them at risk of facing debt recovery action in their own right.