Late payment is a big problem for all sorts of small and medium businesses. With SMEs accounting for the vast majority of private sector businesses in the UK, along with 59.1% of private sector employment and 48.8% of private sector turnover, this is a huge problem for the UK economy as a whole. With economic recovery the hot topic for the UK at the moment, addressing late payment is a top priority for both businesses and the government.
But is it time to punish late payers? While Michael Fallon’s Prompt Payment Code is looking to name and shame the big businesses who fail to sign up, is it time to really hit businesses where it hurts? Some SMEs believe it’s time to make changes to VAT to hit businesses who fail to pay right in the bank balance.
Beatrice Barclay, of 2B Interface, a leading recruitment agency, is one of those who agrees with this; “I think everyone is agreed that the way out of the recession depends on small and medium sized businesses growing. Over the past few years the banks have been criticised for not lending to this sector but in reality a great deal of the borrowing requirement is to fund credit demanded by public companies.”
“Many of these public companies are currently hoarding the cash gained by getting extended credit which does not help the economy at all. If the public companies need credit, they are in a better position to borrow from the banks. Furthermore, according to some industry experts UK Plc is currently hoarding in excess of £754 billion of cash on their balance sheets so why are so many holding back recovery by demanding late payment terms from their suppliers in turn?”
“The answer has to be to look at the cost of credit; one way of solving the problem is to make it expensive to take it…The rule change would be that every company, large and small, will have to pay over VAT on all invoices for goods and services received which at the date of the VAT return are unpaid for more than 60 days. This would apply to whether the original invoice was zero-rated or standard rated, so that suppliers of zero-rated goods and services are not disadvantaged… HMRC needs to consider this simple rule change which in one fell swoop would release cash throughout the supply chain and give Britain’s SMEs a chance to thrive and prosper.”