Local councils still take up to 38 days to pay suppliers
The slowest-paying local councils took on average 38 days to pay their suppliers last year, says new research by ABFA, the body representing the invoice finance and asset-based lending industry in the UK and the Republic of Ireland.
Payment times to suppliers by local councils have remained persistently high in the past year, with the national average dropping just 1% from 16.53 days in 2014/15 to 16.35 days in 2015/16*.
The ABFA says that the central government target of paying 80% of their invoices within five days, but there is no such binding target for local councils. Even so, many local authorities are failing to pay their suppliers within the 30-day period mandated by the Late Payment of Commercial Debt Act, which came into force in March 2013.
The ABFA has found that both Peterborough and East Renfrewshire, Scotland take on average 38 days to pay suppliers, while Richmond upon Thames takes an average of 36 days. This is despite requirements announced in the 2015 Budget, stating that government departments must report their performance against payment targets quarterly.
The ABFA explains that it is often SME suppliers who will be worst hit by delays in payments. Contractors and suppliers who work for local councils are often small businesses, who could find that late-paid invoices restrict their cashflow seriously, in some cases straining their cashflow and threatening their stability.
Jeff Longhurst, chief executive of the ABFA, said:
“Many SME contractors and suppliers are vulnerable to damage in their cashflow, as local councils lag behind on their payments.
“Some progress has been made but public sector organisations should be acting as examples for the private sector to follow. Central government has procedures in place to try to ensure prompt payment to their suppliers – who are often larger companies – but local councils are still dragging their feet.
“SME subcontractors are often hit twice by late payments – both from the local council, and the main contractor. As the last link in the chain, they can end up waiting for months for payment.
“Progress in the time taken for local councils to pay their contractors and suppliers has been glacial, falling just one day since 2009. Local authorities should be making sure they look after SME contractors at every step of the process, and should be looking to improve payment times at a faster rate.”
The ABFA says that invoice finance can be vital to SME suppliers and contractors who are receiving payments late. Invoice finance allows businesses to receive up-front advance on their unpaid invoices, regardless of the time customers take to pay.
“Slow payments from local councils should not cause a roadblock for SME businesses’ potential for growth.
“Small businesses should be aware of all avenues they can explore for funding, including using unpaid invoices to their advantage, by borrowing against them.”