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Local councils put a power of effort into revenue collection. Is that why they are lethargic on the accounts payable side?
After the weather, it’s probably the most talked about subject in conversation. “Turned out nice again, didn’t it? Have you seen the time it takes to get a local council to settle an invoice?”
Small businesses are particularly hard hit. Their resources to chase late payment are often minimal. The fear, however unsubstantiated, is always that come the next round of tendering, preferred bidder status will be so much harder to secure. Who dares to be the company that has been seen to prove ‘difficult’.
So widespread has the problem become, that the Westminster Government laid down targets for all councils to settle their invoices within ten days. Not that it’s made much difference. In the four years since that guideline was published, the average settlement time has come down from a massive 17.7 days … to a massive 17.3 days. Great! A whole tenth of a day (or two and a bit hours) for every year since 2010. The figures come from the Asset Based Finance Association - the professional body for invoice factoring and alternative business lending. Springfords have crunched the numbers, because that’s what gets us through the day, and calculate we’ll therefore be on target for prompt payment by the year 2087.
We don’t know what will be in the charts then, but ABFA’s research found that some local authorities don’t even get close to the thirty-day limit set out in the Late Payment of Commercial Debt Act, a law that’s been on the statute since last March. Whitehall incidentally targets paying 80% of all invoices within five days. That’s four out of five invoices, not four-fifths of every invoice, just for the avoidance of debt. Doubt. Sorry.
Those working with private sector clients may well scoff at all this. “Thirty days” they exclaim in a Pythonesque sort of way. “You were lucky. We used to dream of payment within thirty days!” So bad is this perennial situation, a survey by debt recovery specialists Satago has found that over a third of SMEs are simply writing off bad debt. That's bad for business, but not a bad gamble for unscrupulous non-payers.
Even so, in the public sector, there are calls that councils should be setting an example - and not the sort of example they’re setting now. They should be doing their best to discourage that sort of bad business behaviour.
Research carried out by The Times found that, on average, the worst councils were exceeding forty days to settle invoices. The paper says it’s a postcode lottery in some cases. The figures reflect that assertion. For example, the neighbouring councils of North East Lincolnshire and South Holland take, on average, 39 days to settle an account with the former and four days with the latter.
Let’s hope that councils take heed moving forward – by setting a good example of quick payment then businesses in the private sector might be persuaded to follow suit. Businesses would then have less need to finance working capital - large overdrafts would be a thing of the past – eutopia!