Crystal Umbrella

The European standard for payment terms is set at 30 days. However, the UK government has been aiming towards a target of 10 days since 2008. Now, small business group The Forum of Private Business have made a fresh pledge to the government to stick to their original targets and not be swayed by the standards from the European Union.

The new European legislation comes courtesy of the European Parliament and European Council who have amended the EU Late Payments Directive. This is as a result of the problems faced by small businesses across Europe when customers fail to pay invoices on time. The Forum have welcomed the fact that the EU are attempting to do something about this issue but they do not believe that it goes far enough.

Phil Orford, chief executive of FPB, commented: “If approved by the European Parliament, as expected, these new rules under the Late Payments Directive should make significant inroads in tackling the £24 billion hole in the UK’s economy caused by late payment to small businesses. However, although it is still not a widespread success across the public sector, abandoning the UK’s domestic 10-day payment target would be a significant step backwards in tackling the culture of poor payment.

“Central government departments, for example, are largely meeting the 10-day target and it is important that the UK’s public sector continues to strive to set the standard for other countries and private companies to follow.”

The ‘Regional Employer NICs Holiday for New Businesses’ scheme has come into force in some areas across the UK. The Forum of Private Businesses has welcomed this scheme, however they believe that the scheme does not go far enough if the end aim is economic recovery.

This scheme allows start-ups in Scotland, Northern Ireland, Wales, the North East, North West, Yorkshire and the Humber, South West and West Midlands to have an NIC holiday for their first ten employees for the whole year.

However, the government has also announced extensive public sector cuts and have confessed that they are looking to the private sector to develop job opportunities and economic growth over the coming years. As such, the FPB believes that there should be further tax incentives as disproportionate tax could threaten businesses rather than supporting them to thrive.

FPB chief executive Phil Orford commented: “For years small business taxation has steadily increased, so this reduction in NI for some firms has to be welcomed. However, if the Government is serious about creating conditions for real economic recovery based on strong small business growth, it needs to introduce even bolder tax policies.

He continued: “Given the significant threats to cash flow and business growth from issues such as a lack of bank finance and increasing late payments, recruitment is likely to be slow during the first 12 months for many new firms. The scheme should be available for a longer period than just the first year they are in business.”

The Payments Council will meet today to decide if cheques should be phased out over the next eight years. The Forum of Private Business (FPB) have declared that they are not opposed to this move in principle but they do understand why many small business owners could have concerns. The FPB have stated that they feel the Payments Council should only agree to take this step if they can ensure that it will result in increased payment innovation from the banking institutions. If cheques will no longer exist, there needs to be at least one appropriate alternative which should be driven by customer needs and not by which process is best suited to the banks.

Matthew Goodman, FPB policy representative commented: “Of course, lots of people have reservations about the idea of ending cheque payment. It’s a familiar and centuries-old system which is still used by countless small businesses for ‘arm’s length’ payments.

He continued: “However, we shouldn’t let sentimentality dominate the debate. Cheques are generally the most expensive payment method for businesses to process and those costs are only set to rise as fewer and fewer people use them. As a result, our view is that if the decision is made to gradually phase out cheques over eight years, then we aren’t opposed to it in principle. However, the Payments Council needs to be confident that the decision will lead to practical and convenient alternatives being put in place. If they set this roadmap, the onus will be on the banks to come up with solutions for the many small business who still use cheques.”