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Treasury

Payments legislation not working for SMEs

Efforts to improve the speed of payments being made to small and medium-sized enterprises (SMEs) has not seen success, so technology might be used to fill the gap.

The collapse of construction company Carillion has exposed notable issues being faced by the smallest companies in a supply chain on receiving payments.

Carillion was able to stave off signs of its financial difficulties by consistently paying its suppliers late. In July, the Federation of Small Businesses (FSB) challenged the company on its practices, pointing out the company had signed up to the UK Prompt Payment Code (PPC)

The PPC, from the Chartered Institute of Credit Management, has been signed by more than 2,000 companies. Launched in 2008, signatories of the code state they will pay their suppliers within 60 days, and with 30 days considered the optimum period. They also agree they would provide details to their clients should there be any delay to their payments.

Carillion signed up to the PPC in 2013, but was known for being late on payments, and reportedly did not make some payments for up to 120 days.

The FSB has called for the UK government to enforce stronger terms for any companies signed up to the code. It suggests companies are held to a three-strikes rule, which would see the companies with the poorest payments history struck off and unable to win public-sector contracts until their payments have improved.

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