UK's biggest companies face late-payments code

Lord Mandelson, the Business Secretary, will apply pressure to the heads of some of Britain's biggest companies tomorrow to get them to speed up payments to small businesses.

At a summit with corporate bosses, the Government will launch a prompt payment code to lay down guidelines for companies when paying small and medium enterprises (SMEs).

Lord Mandelson revealed the summit yesterday at a meeting of the Government's Small Business Finance Forum, though he did not discuss which companies would be called in. A spokesman for Lord Mandelson's department declined to comment.

The Federation of Small Businesses (FSB) said it had been pressing the Government on the issue for some time and that it wanted to see good and bad payers at the meeting. Stephen Alambritis, of the FSB, said Tesco and Alliance Boots were examples of later payers while Next, BT and the banks were generally good payers to their small business suppliers.

The Government is concerned about a financial squeeze on SMEs and has been applying pressure on the banks to pass on interest-rate cuts and extend credit to small firms. Lloyds TSB last week highlighted the strain imposed on SMEs by large corporations extending payment times to manage their own cash flow. Mr Alambritis said: "All the Government's good intentions and efforts for small businesses can be undone by one big company paying late."

The FSB said figures presented by the banks showed an increase in overdraft withdrawals and a reduction in loan applications accepted. The banks agreed to provide more detail on credit to SMEs to give a picture of why lending was going up or down.

The Government, industry groups and banks agreed to a revised statement of principles guiding the way banks treat small businesses. The measures included a speeding-up of the time it takes an SME to switch banks so that a small business with debts outstanding can switch within five days rather than 10.

In a statement, Lord Mandelson said: "I am pleased to say we reached agreement today with the banks and SME representatives on a new, revised statement of principles which will govern SME bank lending in future."