Small Talk: The Prompt Payment Code is proving a case of too little, too late as large companies continue to play for time in settling invoices

New year, same old story. Despite endless government promises to crack down on late payments, it looks as if many small businesses will spend a good part of 2014 chasing larger businesses for money they are owed.

It is clear that whatever they say publicly, many large companies have no intention of paying more promptly. And why would they, when the outstanding invoices give them a handy interest-free loan – and when no one is forcing them to clean up their act?

A year ago the business minister Michael Fallon warned FTSE 350 companies that he would name and shame them unless they signed up to the Prompt Payment Code, the code of conduct that is supposed to ensure businesses throughout the supply chain have their invoices settled on time. The initiative was dubbed a success after the number of signatories more than tripled.

Just one problem – in its present form, the code is hopelessly inadequate.

Just ask the Federation of Small Businesses, which has published data revealing that more than half of its members were paid late by larger companies last year. A third of them said profitability had been damaged as a result.

Why is a government-backed code so ineffective? One problem is that there is no sanction against businesses that don’t comply with its very modest requirements – simply to settle within the terms agreed at the outset of a contract.

Nor is there any sanction against businesses that don’t sign up to the code – by the Government’s own figures, roughly 40 per cent of the total UK supply chain is accounted for by non-signatories.

Particularly hopeless is the section of the code that gives a supplier the right to challenge a client’s status as a signatory if their own experience suggests it isn’t complying. In such cases, the Institute of Credit Management, which administrates the code, simply offers to mediate between the two parties.

In the end, this is a problem that comes down to a market imbalance. Small businesses don’t feel able to rock the boat with large, powerful customers on which they may depend for survival. The Prompt Payments Code, an attempt to redress the balance, is patently failing to do so.

So what is to be done? It would help, for starters, to have stronger statutory backing for the code – a requirement for large companies to join it, for example. Strengthening its provisions, particularly on challenges, is also important so that miscreants have something to lose.

But small businesses must be more determined too – particularly in sharing information on the worst payers. Potentially disruptive platforms such as Satago, which aggregates data on the payments track record of companies, can help. So too can the bigger credit-reference agencies and small business organisations. But power comes from strength – smaller firms acting together to force bigger firms to do better.

Actual Experience builds software that helps staff at a client such as ITV to improve its digital systems

Look out for Actual Experience, a British technology diagnostics company that will list on the Alternative Investment Market on Thursday.

The business, whose origins lie in research conducted at Queen Mary University London, is expected to be valued at £16m and already boasts an impressive list of clients, including the broadcasting regulator Ofcom, ITV, Accenture, Verizon and Deutsche Post.

Actual Experience builds software that companies can use to measure the performance of the business applications they provide to their own staff and customers, and to rapidly diagnose problems hindering this performance.

The business has persuaded Stephen Davidson as to join its board as a non-executive director. He currently serves as chairman of Aim-listed Datatec.

Kick-start for techs

Startupbootcamp, the accelerator group that works with start-up businesses, has €15,000 (£12,457) to give away to 10 new financial technology companies under a new partnership it has signed with Lloyds Banking Group, MasterCard and the Dutch financial services group Rabobank.

It is also offering access to mentoring services from entrepreneurs, investors and corporate partners.

In addition, each of the 10 companies will get three months worth of free office space in central London, plus free legal and public relations advice, as well as access to networks of business angels and venture capital firms that may provide further funding.

See www.startupbootcamp.org for details.

Small Business Person of the Week: Sam Middleton, Founder of The Chapar

“We’re a personal shopping service for men – the idea is to look after the modern guy who wants to dress well and look good, but who doesn’t have time to shop. Our customers start by completing a short questionnaire on our website, and we then assign them a personal stylist, a real person who talks to them by phone.

“On the basis of the profile we build, we then send out a trunk of clothes – 12 items is pretty typical – to the customer by courier. They decide what to keep, if anything at all, and the courier then returns to pick up what’s not wanted.

“Customers only pay for the clothes they buy and there’s no charge for styling or the courier. Our business model is that of a retailer – we buy our clothing from around 45 brands, some from well-known names from towards the top end of the High Street and others from new brands, at wholesale cost and then sell them on at retail prices.

“We launched the business 18 months ago with our own money and we’ve got around 2,000 paying customers. Now we’re considering our funding options because the next stage is to scale up.

"A chapar was a longdistance horseback courier that the rulers of the Persian empire used to deliver messages. Chapars were famous for their courage and speed – we liked that idea.”