Hostile response for late-payment ruling

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The Independent Online
The seemingly never-ending saga of late payment, and what to do about it, has entered a new phase, with three of the leading accountancy bodies speaking out against measures designed to crack down on the practice, writes Roger Trapp.

Late last week, the Institute of Chartered Accountants of Scotland added its voice to those of the Chartered Institute of Management Accountants and the Institute of Chartered Accountants in saying the action taken is likely to prove ineffective.

The barrage of criticism follows the Department of Trade and Industry's announcement earlier this year that public limited companies and their large subsidiaries would be required to include a statement of payment policy in the directors' reports published with the annual accounts.

The ICA suggested the ruling could be open to abuse in that it would be possible for companies to take more than one approach and come up with different figures on payment times, while Cima was concerned that the plan failed to provide the relevant information on which to base a credible assessment of a company's payment performance. This, it says, is because the requirement does not compare performance with contract terms; it also implies that purchases occur evenly throughout the year and does not take into account the effect of varying raw material stocks.

The organisation suggests that the position on outstanding payments would be more usefully reflected by a "countback" method and by expressing the year-end creditors as the number of days' purchases that they represent.

The Scottish institute also rounds on the notion of the statement. Ken McHattie, convenor of the body's business legislation committee, said: "We believe that such a disclosure, if reliable and accurate, would be beneficial to users and suppliers, and in particular would substantiate the stated payment policy. However, we are concerned that, as the proposed calculation would be based on year-end figures, they would be oversimplified and unrepresentative of the year as a whole."

The institute does not advocate introducing fresh measures for at least two years since it regards that as a minimum period to assess the ruling's effectiveness.