- Some councils making contractors wait more than 40 days for payment
- SME subcontractors facing double wait for payment
New research by the Asset Based Finance Association (ABFA) has revealed that many local councils are lagging far behind Central Government guidance on prompt payment of suppliers.
The ABFA represents the asset based finance industry in the UK and the Republic of Ireland. Their research indicates that local councils are currently paying their suppliers in an average of 17 days when in July 2010, Central Government departments were instructed to pay 80 per cent of invoices within just five. This followed an earlier reduction to 10-day payment terms in October 2008, in which local councils were encouraged to follow the example set by Central Government.
This research reveals that local government is not abiding by Central Government guidance, with the average wait for payment from local authorities virtually unchanged from 17.7 days in 2009/10 to 17.3 days in 2013/14*.
The ABFA's research found that some local councils are even failing to make payments to their suppliers within the 30-day payment period mandated by the Late Payment of Commercial Debt Act, which came into force in March 2013. They continue to add that the average wait for payment is still in excess of 40 days for some local authorities.
Chief Executive of the ABFA, Jeff Longhurst, says: “Public sector organisations should be acting as role models for the private sector in paying their invoices as promptly as possible.
“Central Government bodies have performed well in hitting their prompt payment targets – many now pay more than 90per cent of their invoices within five days. The current average of 17 days for local councils leaves a lot of room for improvement.
“Those that fail to pay within 30 days risk damaging businesses in their local areas.”
SME subcontractors hit twice by waits for payment
The ABFA adds that SMEs are often hit twice by waits for payment when working on subcontracted projects for local authorities, as they have to wait for both the council and the main contractor to pass on payment.
Recent research by the ABFA found that businesses with a turnover under £1 million have to wait an average of 71 days to receive payment.
Says Mr Longhurst: “Smaller businesses brought in as subcontractors on projects for local councils are vulnerable to delays in payment. As the third link in the payment chain, they often end up waiting months for their invoices to be settled.
“Local authorities need to make sure they are adding as little as possible to that wait by paying as promptly as possible and should persuade their main contractors to pay their sub contractors quickly.”
Invoice finance supports cash flow for SMEs
The ABFA says that for small businesses struggling to secure prompt payment from clients, including public sector bodies and outsourcing groups, invoice finance can be a vital component to assist cash flow.
The ABFA explains that invoice finance allows businesses to receive up-front advance on their unpaid invoices, regardless of the time customers take to pay.
Says Mr Longhurst: “With the economy having recovered back to pre-recession levels, there are now more opportunities for SMEs to grow, whether through purchasing machinery, expanding the workforce, taking on new customers or investing in R&D.
“A huge number of SMEs rely on outsourced work from local government bodies, but there is no reason why slow payment should become a roadblock to growth for them.
“Small businesses need to be aware of all the tools in their funding kit, including options like borrowing against their unpaid invoices, which are often their biggest asset.”
* Year end March 31
