Public Sector Should 'Stick To Payment Target', Says Business Forum

The UK's public sector should retain its existing target of paying small firms in 10 days despite a new ruling to make 30 days the standard across the European Union (EU).

The Forum of Private Business is calling for a re-think after the European Parliament and European Council agreed to new legislation amending the EU Late Payments Directive in order to address the widespread problem of late payment across Europe - including imposing a standard 30-day deadline for payments.

While welcoming the development, the Forum is concerned that many public sector bodies could abandon the UK's own domestic 10-day target, which was announced in 2008.

The Forum's Chief Executive Phil Orford said: "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 Forum is pleased that the European Commission's initial proposal to allow debtors and creditors to agree payment terms separately has been scrapped.

According to members of the not-for-profit business support and lobby group there is rarely any scope at all for a small business supplier to properly negotiate terms with large customers, so this would have effectively amounted to an opt-out clause for many big businesses.

If a payment is late, authorities will have to pay a surcharge of 8% on the money owing, as well as fixed compensation of €40 (approximately £27) for the creditor's recovery costs.

Although 30 days has been deemed standard, in exceptional circumstances most public authorities can extend this to 60 days if they have 'special justification.'

However, public healthcare providers can be afforded a maximum deadline of 60 days because of the special nature of bodies such as public hospitals which are, according to a European Parliament, statement 'largely funded through reimbursements under social security systems.'

This exemption risks undermining work carried out in the UK that has led to some NHS trusts paying within the 10-day target – and could prevent others from improving their payment times.

Research carried out by the Forum has discovered some NHS trusts are paying more than 90% of their bills within 10 days.

However, others are processing absolutely none in the timeframe – and some are barely managing to pay one in five invoices within 30 days.

The Forum used the Freedom of Information Act to reveal the figures and found at least five NHS trusts had paid fewer than 1% of their bills in 10 days over the past year. Additionally, at least 35 trusts processed fewer than 10% within 10 days.

(BMcN)