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The Prompt Payment Charter – Has It Had An Impact On The Company Formation Sector?

For a lot of entrepreneurs, when they decide to start the company formation process, they are greeted with the fact that ‘most recently formed companies fail within the first year of trading.’ It is widely acknowledged, not least here on this blog, that this is fundamentally due to a lack of cash flow and ineffective cash flow management. Never has it been more important for small businesses to get paid on time than in the current economic downturn and, with the announcement of the ‘Prompt Payment’ charter last year it seemed that government was finally paying some attention to this. 
The premise of the code is to ensure that organizations who are contractually committed to pay a company, do so within the timeframe the agreed to. However, the charter failed to protect the small business sector from the damage of late payment, as many companies were reluctant to sign up.
According to government sources, late payment or failure to pay remains the number one challenge facing most small business and recent company formation. Matthew Sockett, CEO of design company M. S Designs, has committed to the code. He says: “When we first formed the company, over twenty years ago, getting payment was less of an issue. However, in the current economic context, it is so difficult managing cash flow that an entire department has been formed just to manage it. A lot of people have said that the current situation is due to the recession, but I think it is just an example of entrepreneurial opportunism – business owners know that they can be a bit late because everyone is aware there is a recession going on.”
The government is set to embark on a major marketing campaign with objective of getting more people to sign up to the charter, how effective it will be remains to be seen.

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