Late payment is becoming an increasing cost on small and medium businesses in the North East, a new survey suggests.
The North East has taken a lead on tackling the problem of late payment after The Journal initiated its Pay Fair campaign in association with the North East Institute of Business Ethics.
According to the CBI, £30bn is owed to UK firms - many of them SMEs - as a result of late payments, with small companies down the supply chain often suffering as a result of cash being withheld by larger firms.
This week has seen a number of firms in the region suffering as a result of construction giants GB Group and GB Building Solutions going into administration, highlighting the problem of payments for smaller firms.
And a survey by financial services group Close Brothers has found that late payment problem continues to be an issue for almost two fifths of SMEs in the North East.
Rob Hatfield, regional sales director for Close Brothers Invoice Finance in the North East said: “Our findings show that the burden of late payments continues to be a headache for almost two fifths of businesses in the region, resulting in cash flow difficulties for the majority (68%) and for as many as 16% of firms, it is threatening their ability to trade.
“The amount of money that SMEs are forced to write off as a result of late payments is staggering and surely hindering business growth. We found that large corporate organisations were judged the worst offenders by 53% of SMEs in the North East, closely followed by the public sector for almost a third of firms.
“We have recently welcomed new rules from the Cabinet Office which aim to reduce late payments by the public sector by enforcing 30-day payment terms which should help to improve the situation somewhat.
“It’s clear that late payments continue to be a real issue for SMEs, that is why we are working to improve awareness of the financial options available, such as invoice finance, that can help businesses manage their cash flow and ultimately enable them to fulfil their growth potential.”
Mr Hatfield’s comments have been echoed by John Dickson, chairman of North East civil engineering company The Owen Pugh Group, which has suffered as a result of GB going into administration.
He said: “Emerging from the recession, major contractors like GB find that they have used up all of their fat are making ‘suicide bids’ to win work as they compete in what is still a very tough and competitive market. In turn they are then squeezing the local supply chain as far as they can so there’s little profit for anyone involved. The problems then start when contracted payment schedules are not adhered to and we see a knock on effect of cash-flow issues for all concerned which is a very dangerous cycle.
“When it comes to payments there are essentially two problems, payments that arrive after the specified timeframe and unreasonable timeframes themselves, but to some extent I’d rather a contractor pay on time in accordance with the schedule, even if it is over a longer timeframe then at least it can be built into pricing and cashflow forecasts.
“The public sector in particular has a duty to exercise due diligence when it comes to investigating a company’s payment history, and if a company falls short, they should be removed from preferred suppliers registers.”
The Journal is urging firms to sign NIBE’s Business Ethics Pledge, thereby agreeing to join with others to discuss the role and value of business ethics and to work with each other to transform their working environments into places where ethics and community involvement are part of the everyday activity.
A number of leading firms, plus business organisations like the Entrepreneurs’ Forum and the North East Chamber of Commerce, are backing the campaign.
For more information on the business ethics pledge, go to www.nibe.org.uk .