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At a time when cash flows are under pressure it has come as no surprise to many SMEs that large companies in the construction sector have recently been accused of bullying their sub contractors in what a Daily Telegraph article has described as ‘shameful practices'.
The principal charge against the larger companies is late payment but a wide variety of dubious practices for delaying, withholding or discounting payments are also alleged. This echoes figures issued by the Department of Business in 2011 which indicated that over 4,000 businesses in 2008 failed as a direct result of late payment. For many companies struggling to weather the economic climate, late or extended payment terms are the last thing they need. As lines of credit dry up and banks cut back on business overdrafts, the prospect of major customers delaying payment is in some cases the final nail in the coffin.
Inevitably nobody wants to risk upsetting a major client; far less litigate in a downturn when threats of action are most likely to result in the client handing their business to a more compliant competitor; but what are the alternatives?
In the opinion of some industry representatives, it is time for Government action to tackle a problem that has apparently become endemic in British industry. The Late Payment of Commercial Debt (Interest) Act 1998 in the UK was considered to be a first step towards discouraging late payment. More recently in Directive 2011/7 which is due to be enacted in UK Legislation by March 2013 and which is currently the subject of consultation, the EU sets out standardised payment terms for businesses across Europe. Whether this will ultimately resolve what has now become a deep-rooted practice in the UK remains to be seen. In some European countries, notably Germany, discount is given for payment within 14 or even 10 days. In the UK construction industry it is probably the case that payment within a month would seem like a dream.
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