Businesses urge new government to tackle late payment abuse

Businesses across different sectors are urging the new government to end late payment practices that are crippling many small companies.

They say the existing Prompt Payment Code isn’t working and fear a surge in company insolvencies if no action is taken.

David Frise, CEO of the Building Engineering Services Association (BESA), said repeated failures by previous governments to deal with late payment culture meant company failures were almost inevitable.

He said: “The huge burden of debt created by the ongoing abuse of cash retentions is forcing many SMEs out of business and robbing our country of their vital expertise.”

Debbie Petford, of BESA’s legal and commercial department, said the problem could be solved if the government legislated to ensure prompt payment of invoices to sub-contractors.

Meanwhile, figures from the Insolvency Service showed that 343 housebuilders went out of business in London and the South East alone in the year to September, up 26% on the previous year.

Paul Pitman, of accountants Price Bailey, said listed housebuilders had done well but the smaller firms had struggled. He said: “Smaller housebuilders do not benefit from the same economies of scale as the larger builders and have seen their margins squeezed by rising labour and materials costs.”

Rudi Klein, of the Specialist Engineering Contractors’ Group (SEC), has also warned that more firms will become insolvent if the government doesn’t solve the late payment problem.

He told Construction News: "The industry is so embedded with payment abuse and malpractice; it is essential that the government wakes up to this.”

He added: “The Prompt Payment Code is as useful as a chocolate-coated hot water bottle – there are no consequences to being thrown off.”

The SEC is calling for penalties to be imposed on late payers.

With the government likely to be focusing on negotiating a new relationship with the EU over the next year, it’s unclear whether there’ll be much time for dealing with late payment issues.

It means that firms will still have to maintain tight a tight rein on debt and credit to avoid developing cash flow problems of their own.

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