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SMEs to benefit from a new culture of prompt payment

It's estimated that half of all business transactions take place with no pre-agreed payment terms, according to the Department for Business Innovation and Skills (BIS). This becomes a problem when companies abuse the trust surrounding such agreements, and pay later than expected. Small and medium-sized businesses (SMEs) are more likely to suffer from late payments than larger companies, which have greater financial resources to cushion the impact of late payments.

Poor cash flow can be a major issue for SMEs, as it not only inhibits growth, but could push them into insolvency. The Federation of Small Businesses found that about three-quarters of its members had been on the wrong end of a late payment, and more than one in ten of those were waiting for sums greater than £35,000.

BIS said it was trying to change payment culture buy urging larger businesses to sign up to the Prompt Payment Code. But it also said that the problem persists over all sectors and all business sizes. The Code will be bolstered by the imminent introduction of the European Union Late Payment Directive, which aims to protect SMEs from chronic late payment. It stipulates that in most cases business-to-business payments cannot exceed 60 days unless otherwise agreed, and public sector payment terms cannot exceed 30 days on receipt of invoice.

Late payments between businesses can have a disastrous knock-on effect for employees. Paying fully and promptly is crucial for maintaining good employee relations and a motivated workforce. Inadequate or unsuitable pay arrangements or changes in pay without the agreement of employees can damage morale and performance, and lead to court cases or employment tribunals.

Acas provides help and support for SMEs and employers generally when it comes to matters concerning pay. Acas can visit your organisation to help you address and solve issues related to pay. Visit Pay and reward: how Acas can help or the Acas Training and Business Solutions area for more information.

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