UK Prompt Payment Code Hypocrisy – And which North West Councils are not signed up

Written by admin on April 6th, 2011

Following on from the earlier article, ‘UK Prompt Payment Code Hypocrisy’, I thought I would put the post into perspective and share which councils were not signed up to the UK Government’s poster campaign, designed to help small businesses out of recession and avoid cash flow problems caused by late payments. The first band of council’s to be highlighted, are those in the North West of England.

As we know, the effect of late payments on SME’s is highly documented and a current hot topic given the state of the economy. Despite this nearly half of the 41 North West of England Councils are not signed up to the Prompt Payment Code, which begs the obvious question as to why?

Perhaps an impartial observer may point out that just because some UK Councils are not yet signed up, it doesn’t necessarily mean that they are actually paying suppliers late? Whilst this is certainly a possibility, I will leave you to draw your own conclusions. Of the 18 North West of England Councils not signed up (44% of the total), it can also be noted that as of today June 10th, no applications are currently pending from  any of them either.

Here is a full Regional Breakdown of which Councils are not supporting the Prompt Payment Code:

Cheshire – Cheshire East Council, Cheshire West and Chester Council & Halton Borough Council   Cumbria – Cumbria County Council & South Lakeland District Council  Greater Manchester – Oldham Metropolitan Borough Council, Stockport Metropolitan Borough Council, Tameside Metropolitan Borough, Trafford Metropolitan Borough, & Manchester City Council  Lancashire – Blackpool Borough Council, Burnley Borough Council, Lancashire County Council, Lancaster City Council, Ribble Valley Borough Council, Rossendale Borough Council, &West Lancashire District Council  Merseyside – St Helens Metropolitan Borough Council

It should also be noted that North West Development Agency wrote to all of the above councils in September 2009 asking them to join the scheme.

Phil Woolas, then Regional Minister for the Northwest commented, “The importance of cash flow to all businesses, especially small businesses is clear in the current climate. Most small companies say that they have already been affected in some way by the economic downturn. The success of small and medium sized businesses is vital for the prosperity of the region and these businesses need access to cash flow. I am encouraged that Government in the North West is building on its commitment to pay firms within 10 days…..”

If we take Manchester City Council as an example of the councils not in the scheme and look a little closer, we can see the resultant impact any late payments from a council like Manchester City could have on SME’s. Many of which may be constituents of the very council they supply.

For 2009/2010, MCC states its budget is £400m and of that, some £47m is earmarked for Corporate Services, £96m for Housing, £21m for Transport, and £189m for Education. Whilst there are no figures readily available to indicate what proportion of those budgeted amounts will go to UK SME’s, or those supplying from the North West, according to the council’s own website, it states some of the services it purchases are as follows:

Agency Staff, Building Consultancy and Construction, Business Travel, Housing Services, Information Technology, Office Furniture, Office Products, Residential and Nursery Accommodation, School and Children’s Services, and Social Care etc.

With a £400m budget from just one council of the 18 not participating in the Code, there is an enormous potential for tens or even hundreds of millions of pounds in late payments owed by councils to routinely impact the cash flow of their North West based, SME suppliers.

As an Invoice Finance specialist, we have had clients supply services just like those stated above, to many of the UK’s councils. Whilst some councils are better than others at paying on time, the SME’s we (and our industry colleagues) have encountered, became concerned about their cash flow position owing to the drawn out invoice settlement periods some were experiencing. In many cases supplying companies laid out large expenses necessary to fulfil the contract/tender before they themselves were paid, further compounding the problem if the eventual payment was indeed late.

This tied up cash can then be locked for several months, effectively limiting the ability of the business to progress new orders and to pay its own liabilities.

Whilst a council will employ agency staff, and may not then pay the recruitment agency for several months, the supplying recruitment agency cannot in turn delay payment of the wages to the supplied staff for the same duration. Such a practice would leave them open for all manners of negative press, likely litigation claims, and effectively ruin the reputation of that business. Yet, when Council’s are owed money they are quick to use the threat of court action and winding up petitions for late payment of business rates and the like.

The misconception is that late payments are a by-product of business to business transactions only.

The reality is that although councils don’t go out of business and generally do pay eventually, some are too slow to go about it and as a result, small businesses often face difficulties. It does seem hypocritical that some UK councils are not being seen to pay their own bills in an equally expedient manner that they expect to be paid themselves?

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