Late payments are undeniably a major problem for many companies, yet many choose not to aggressively pursue overdue invoices due to concerns that it might harm relationships with prompt-paying customers too, or simply the view that it’s better to be paid late than never.
But this has created a Catch-22 situation, in which the government is forced to try and tackle late payment culture using legislation that many companies ultimately choose not to enforce – and few would truly support the notion of mandatory penalties and inescapable court action on all overdue invoices.
The Confederation of British Industry is instead calling for a more comprehensive picture of late payment to be compiled, by making it mandatory for companies to include information about the promptness of their payment practices in their annual accounts filed with Companies House.
CBI director general John Cridland says bad payment practice “must be challenged” not just for the sake of prompt payment itself, but for the jobs and economic growth it would underpin.
“We want to see companies publishing simple information online and in their annual reports about their payment practices because it shines a light on this important area and makes good business sense from an investor and supplier perspective,” he said.
“Reporting payment information will help show that larger companies are keeping their word by giving suppliers greater opportunity to challenge unfair terms.
“But we also need to make sure we steer clear of creating accidental perverse incentives that might encourage companies to extend their payment terms to reduce the proportion of those paid late.”
Ultimately the CBI is asking for three things in response to a government consultation entitled Business Payment Practices: Duty to Report.
- Companies should be required to report annually on their average time to pay, and on the proportion of invoices that are paid late;
- Reporting should also explain their standard and maximum payment terms;
- Government reporting mechanisms should be strengthened in line with the recommendations of the National Audit Office.
The proposals seem fair – neither burdening creditors with additional reporting requirements, nor enforcing mandatory penalties and court action in situations where they would not be appropriate.
And although there would be an inevitable increase in admin to a certain extent, the information that is being asked of companies is something any properly functioning credit control and accounts team should already have to hand, if invoices are being processed and paid promptly.