BT BT Group PLC

By Nina Trentmann 

A professional body for the credit management industry took action against Prudential PLC, BT Group PLC, British American Tobacco PLC and other British companies for failing to pay suppliers on time.

The U.K.'s Chartered Institute of Credit Management on Wednesday suspended 18 companies from the Prompt Payment Code, a set of rules governing supplier payments that more than 2,000 U.K. companies have agreed to follow. By voluntarily signing the code, firms oblige themselves to settle 95% of all supplier invoices within 60 days.

The CICM monitors companies' compliance with the code on behalf of the U.K. government but doesn't have additional enforcement powers beyond suspension from the code. It releases a report on compliance with the code on a quarterly basis.

Companies suspended from their membership in the code must form an action plan to improve their payment performance and can be reinstated once they demonstrate compliance with the code, the CICM said. A suspension can result in negative publicity for a company, among other things.

Large companies with lots of buying power carry substantial leverage in negotiations with suppliers. Delayed payments can free up working capital enabling finance chiefs to strengthen financials at the quarterly close.

The move by the CICM comes amid increasing concerns about corporate payment practices.

About one-third of payments to small businesses in the U.K. arrive late and about 20% of enterprises are facing cash flow problems because of late payments, according to figures from the U.K. government.

Late payments increase in times of economic volatility, according to the Federation of Small Businesses, which represents 160,000 small firms in the U.K. Uncertainty around Britain's exit from the European Union is likely resulting in more late payments, according to the group.

The U.K. government last month presented steps to improve the payment culture among British companies.

As part of the proposal, the office of the Small Business Commissioner -- an independent public body tasked with tackling late payments in the private sector -- could see its remit expanded to include the ability to fine companies that miss their payment targets or to impose binding payment plans.

Audit committees could be obligated with reporting on the payment practices of their company in the annual report. The Small Business Commissioner, Paul Uppal, would take over the administration of the payment code.

"We will continue to challenge signatories to the code if the obligatory payment practice reporting data suggests that their practices are not compliant," said Philip King, chief executive of the CICM, in a statement.

Large U.K. companies are required to disclose twice a year how frequently they pay their suppliers.

BT, the British telecommunications company, has agreed to an action plan with the CICM and has begun implementing it, according to Saul Markcoons, a spokesman for the company. BT settles 87% of invoices from small businesses in less than 60 days, and spent more than GBP9.2 billion ($11.44 billion) on this type of bill in 2018, he said.

British American Tobacco, a London-based cigarette maker, plans to have an action plan in place by the end of the year, according to Simon Cleverly, the company's head of corporate affairs.

Prudential PLC, an insurer, said it is committed to paying external service providers promptly.

The Federation of Small Businesses said more needs to be done to strengthen the enforcement powers of the payment code.

"It does not have enough teeth," Alan Soady, a spokesman for the FSB, said. Eighty-four percent of FSB member companies report they are being paid late.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

July 17, 2019 14:02 ET (18:02 GMT)

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