Small Businesses Hit by Late Paying Local Councils

Councils fail to follow prompt payment policy, with some small business working with contractors waiting over 70 days for payment

New research has revealed local councils are falling behind the government’s guidelines for prompt payment of invoices.

From July 2010, government departments were ordered to pay 80% of invoices within five days, however the research shows that suppliers on average wait 17.3 days to receive payment from local councils.

The report, issued by Asset Based Finance Association (ABFA), revealed that some local companies even fail to pay within the 30-day period instructed by the Late Payment of Commercial Debt Act.

Small and mid-sized businesses working on sub-contracted projects are the worse effected as they have to wait on the main contractor and the local council. Recent research found companies with a turnover of under £1m are being forced to wait an average of 71 days before receiving payment.

Reports earlier this year revealed that small and mid-sized businesses are the worse effected by late payment, which weakens cashflow and makes it more difficult for small businesses to invest in growth and pay existing expenses.

Chief executive of the ABFA, Jeff Longhurst, discussed the findings:

“Smaller businesses brought in as subcontractors on projects for local councils are particularly vulnerable to delays in payment. As the third link in the payment chain, they often end up waiting months for their invoices to be settled.”

“Local authorities need to make sure they are adding as little as possible to that wait by paying as promptly as possible and also in persuading their main contractors to pay their subcontractors quickly.”

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