Cavalier finance directors who regard late payment almost as a badge of honour are not only hurting vulnerable suppliers, they may be damaging their own businesses

I spend an increasing amount of time chasing overdue payments. One phone call used to do the job. Accounts had obviously been told to hold off paying until suppliers contacted them, but at least I would get a cheque a couple of days later. These days I have to be more persistent, making several calls to different people over a number of weeks before getting paid.

There is a familiar litany of excuses: the accounts department "never received the invoice", the payment "will go out in the next cheque run", it is "awaiting authorisation", the person who needs to sign it off is "travelling".

It's all nonsense, of course, because most of them never had any intention of paying me on time. By "on time", I mean within 30 days of submitting the invoice, which is best practice and, in the absence of different agreed terms, the law.

Many accounts departments seem to be oblivious of either the law or best practice. Or maybe they are aware, but just too disorganised to comply. But accounts department incompetence—aided and abetted by finance directors preoccupied with "more important matters"—is a generous explanation for habitual late payment. The more usual cause is a deliberate policy by an organisation to maximise cashflow at the expense of its (usually smaller, more vulnerable) suppliers.

The late-payment legislation introduced in 1998 allows businesses to charge interest on overdue payments and claim debt recovery costs from their clients, but few use the law for fear of damaging their relationship with customers, or even losing the business.

The miscreants have no such scruples, judging by their rising tendency to change payment terms, often at short notice, after a contract has been agreed. Alliance Boots shocked its suppliers earlier this year by announcing it was extending its payment terms from 30 days to 75 days from the end of the month in which the invoice was submitted, and imposing an extra 2.5 per cent settlement discount to boot.

Late payment and messing about with payment terms is unethical, unprofessional and, ultimately, uneconomic. Starving smaller suppliers of funds to try to boost your own liquidity and earn extra interest on their money is inconsistent with corporate responsibility. But the problem is endemic in UK business culture, and it is getting worse. The Federation of Small Businesses (FSB) estimates that small firms are owed £18.6bn, £2.6bn more than last year. The average time it takes large companies to pay their suppliers is 44 days—and rising. What's more, 6,000 of Britain's 10,000 PLCs are breaking the law by failing to declare their payment terms in annual reports.

This cavalier approach has a pernicious effect on small businesses. Some 39 per cent of respondents to a survey of sole traders and small and medium-sized enterprises by Creditsafe, a business credit information company, said late payment affected their profits, with
30 per cent unable to pay bills on time. And the FSB estimates that one-tenth of small-business collapses are triggered by late or non-payment of bills. If large companies continue to abuse their size and clout in this manner, they won't have any suppliers left to buy from.

The Credit Management Research Centre at Leeds University Business School publishes a revealing list of the good, the bad and the ugly corporate payers, complete with county court judgements against them for late payment. But whether this public naming and shaming will affect the required culture change, particularly during a recession, is debatable.

There are too many finance directors out there who seem to regard never paying a supplier on time as a sort of badge of honour. Presumably, they view Britain's lowly ranking in the European league tables of good payment practice as a sign of commercial acumen.

Late payment is a symptom of the same buccaneering approach to finance that has brought the banks to their knees. Our financial system seems to have been built largely on credit and confidence. But with late payment frequently viewed as a sign of trouble, corporate accountants who condone the practice need to check they are not building their own house of cards.