The collapse of Carillion has led the Federation of Small Businesses (FSB) to call into question the effectiveness of the Prompt Payment Code (PPC) and raise the need for urgent reform to successfully tackle the UK’s late payment epidemic.
Despite being a signatory of the PPC since 2013, Carillion were notorious for being late payers, says the FSB. Last July, the FSB exposed these poor practices when it came to light that some members were being made to wait 120 days to be paid.
Poor payment practice continues to be a big issue for small businesses with FSB research showing that, on average, 30% of payments are typically late while the average value of each late payment stands at £6,142. Furthermore, it costs the UK economy £2.5bn each year and kills 50,000 small firms.
FSB is calling on Government to mandate that all FTSE 350 companies sign up to a strengthened Prompt Payment Code with a new “three strikes and you’re out” rule, which specifically targets repeat offenders of late payment. The worst offending companies should be struck off and stripped of the right to be awarded public sector contracts until their practices have improved.
“Sadly this sorry saga has laid bare the frailties of the Prompt Payment Code,” explained Mike Cherry, National Chairman at the Federation of Small Businesses. “While it is fundamentally a good idea, it does not work when it is most needed – as shown with Carillion’s behaviour since July 2017.”
“Although they were signatories of the PPC, Carillion were able to use their dominant position to squeeze smaller firms to mask their own financial failings,” he added. “This irresponsible behaviour has put many small businesses in jeopardy, with countless people fearing for their jobs.”
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