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SMEs still suffering from FTSE payment terms

Withfsb about as much use as the proverbial confectionary based fireguard, the Prompt Payment Code has come under fire from the Federation of Small Businesses (FSB).

The voluntary and non-binding nature of the code means that at best its participants – estimated to include up to ¾ of the companies listed on the FTSE 100 – simply need to “promise” to pay within “agreed terms” without reference to a minimum or any other qualitative or quantitative measure.

Mike Cherry, National Policy Chairman of the FSB, has called for the Code to reflect the relevant European Directive on the issue, which requires that commercial debtors must pay within 60 days in most instances.

Currently it is estimated that the equivalent performance amongst the FTSE 100 listed companies is 120 days or more putting many small businesses in peril.

Cherry said:

“Let’s stop making excuses. All those signed up to the Prompt Payment Code should abide by the terms of the EU directive — and we need to make sure all the FTSE 100 are signed up to it as a starting point.

“When it comes to a small supplier and a large customer, these contracts can’t be negotiated. Forget about it. It’s a letter on your desk saying, ‘these are the terms’.”

Cherry added that those companies who fail to abide by the 60 day rule should be automatically expelled from the Code.

The Director General of the body responsible for the Prompt Payment Code, the Institute of Credit Management, Philip King, said:

“I am not averse to the idea, but we must be wary of unintended consequences. There are examples where it is in a supplier’s interests to have longer terms and we don’t want to encourage people who are paying faster than 60 days to think that should be the new norm.”

That such a desire to have elongated payment terms is probably valid in rare instances it by no means represents the bulk of the needs of small business. Indeed given the FSB report that 1 in 5 small businesses have reported great suffering under the payment terms, and behaviours of big companies, the risk to payment terms of less than 60 day being revised upwards seems a remote possibility indeed.