Britain's small and medium enterprises (SMEs) are owed a total of £35bn in late payments. Yet only 1 in 4 of the UK's biggest companies have signed up to the prompt payments code which has been set up by the Institute of Credit Management (ICM). It is not as if the code is binding or anything.
Companies can comply with the code simply by paying bills when they said they would, not seeking to change payment terms retrospectively, and by ensuring a clear system is in place to deal with any problems or complaints that do arise.
The fact that many small companies are reluctant to get heavy with their biggest customers for fear of losing them goes someway in explaining the increase in factoring whereby businesses sell on their invoices for a discount. This can help ease cashflow problems.
Companies should be vary wary of allowing even larger companies build up large lines of credit as it maybe that they themselves are in trouble and are just delaying payment. Credit ratings of businesses are not always very up to date and don't always give piece of mind.
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