Almost a quarter of insolvencies (23%) are caused by late payment issues, according to new research from the Association of Accounting Technicians (AAT).
The firm said that, even for companies that manage to absorb late payments, the loss of income can stop businesses from investing and growing, damage productivity and generally has a “very negative impact”.
It said the government recently announced new steps to tackle the “scourge” of late payments.
- A new £1m fund to encourage businesses to use technology to simplify invoicing, payment and credit management
- Proposed new powers for the Small Business Commissioner to tackle late payments through fines – as proposed by the AAT
- Company boards to be held accountable for supply chain payment practices for the first time – as previously announced by the chancellor in October 2018
- The movement of the Prompt Payment Code from the Chartered Institute of Credit Management to the Small Business Commissioner under a carefully managed transition
Last year AAT made three recommendations to government:
- That the Prompt Payment Code be made compulsory for all companies employing more than 250 employees
- That payment terms under the Prompt Payment Code be halved from 60 days to 30 days
- That the Small Business Commissioner be given powers to impose financial penalties on persistent late payers
These three AAT recommendations secured the support of 73% of MPs according to YouGov polling, numerous SMEs and the construction, property, finance, recruitment and fashion industries.
Phil Hall, AAT head of public affairs and public policy, said: “AAT is naturally pleased that government has accepted our recommendation to give the Small Business Commissioner powers to impose fines on persistent late payers, which should have a deterrent effect on many late payers.
“Moving the Prompt Payment Code to become the Small Business Commissioner’s responsibility also makes sense.”
He added: “However, AAT is very disappointed that despite a wealth of support from businesses across a wide variety of sectors, and the vast majority of MPs, government has again ducked the opportunity of taking more meaningful action by compelling large employers to sign the Prompt Payment Code and to halve maximum payment terms under the Code from 60 to 30 days.”