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Government backed payment scheme failing small businesses


The prompt payment code, backed by the UK government has been failing it’s objectives of ensuring that small suppliers are paid on time.
Around 1,500 firms signed up to the scheme when it was originally set up in December 2008 in order to facilitate a need for small suppliers to recover over £30.2 billion in owed payments. However, it seems that the scheme, despite being supposedly strengthened by the European Directive on late payments, is failing to meet is objectives.

This theory of a failing scheme is heavily supported by former Trade Minister Lord Digby Jones who has claimed that some companies are making a mockery of the scheme by deliberately extending their payment terms as part of their business strategy.

Lord Jones said: "I think the code certainly has not worked. It was a nice statement of intent. At the end of the day, have you heard of any big business being shamed into changing?" He further added that as a result, small companies cannot afford to take people on - or invest in new equipment and that "somewhere, someone is paying an additional cost because the company at the top is basically borrowing off the small business rather than borrowing off the bank.”

Furthermore, one small business owner claimed that "Some contractors are dragging payment terms to 45, 60 even 120 days. When you've got to pay all that money up front and try and run a business it's nigh on impossible”. The same business owner also said that he was forced to cease trading at one point due to being owed over £1.2 million.

The Federation of Small Businesses (FSB) backed up these claims. The FSB said: "We know around four in 10 businesses that are paid late will go on to pay their own suppliers late or struggle to pay their staff. It cannot be right that small businesses are in effect being asked to lend to their large customers”.

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