Small Business Minister Kelly Tolhurst and Business Secretary Greg Clark have both announced new measures to end the problem of late payments to small businesses by large companies who abuse their position. But what exactly are these measures—and how effective will they be?
Late payments: a perpetual problem
Survey after survey reveals that late payment is a major problem for small businesses and that, despite the appointment of the Small Business Commissioner and the introduction of the voluntary Prompt Payment Code, it’s a problem that’s not going away.
Nearly a quarter of UK businesses report that late payments are a threat to their survival. Tackling them represents a huge opportunity for economic growth, with research from the Federation of Small Businesses suggesting that eradicating late payments could add £2.5 billion to the UK economy and keep an extra 50,000 businesses open each year.
The new measures include:
• A call for evidence to consider the best way company boards can put in place responsible payment practices throughout their supply chain, e.g. nominating a non-executive director to be specifically responsible for the company’s prompt payment performance
• Promoting innovative technologies, such as the latest accounting software, to help small firms manage their payments processes and empowering trade bodies to highlight the best and worst practices in payment behaviour
• Small Business Commissioner Paul Uppall to join the Prompt Payment Code’s Compliance Board to support his role in tackling late payment
• The board to consider all complaints made about compliance as part of regular reviews, and report on all cases of signatories being removed from the code
• Further reform to the code to be considered including whether the Small Business Commissioner should have a greater role in its administration
• All Government departments will commit to paying 90% of undisputed invoices from SMEs within 5 days
• All government departments will have a dedicated non-executive director responsible for prompt payment, improving payment practices and exploring how better to use technology to make payment processes more efficient
Small Business Minister Kelly Tolhurst said:
“Over the past 5 years the amount owed to businesses in late payments has halved, but we will go further to make sure all of our small businesses are treated fairly.”
“Today’s new call for evidence will help us identify the most effective way possible to tackle this issue once and for all and ensure small businesses are on a level playing field with their larger counterparts.”
Federation of Small Businesses (FSB) national chairman Mike Cherry said that it was good to see the Government “getting serious about this issue,” welcoming both their intention to set an example in prompt payment and the involvement of Paul Uppal as an indication of “a more joined-up approach to this difficult issue.”
However, he also pointed out that the voluntary Prompt Payment Code doesn’t always work, citing the example of Carillion. The company were signed up to the Code, which is an agreement to pay within 60 days, yet the company were taking 120 days to pay invoices.
“We want to see a new tough and transparent compliance regime being proposed,” said Mr Cherry.
Mike Cherry is not the only one who fears the Government aren’t going far enough.
Labour’s Shadow Business Secretary Rebecca Long-Bailey accused ministers of refusing to address the imbalance between large companies and small businesses.
“Today’s astonishingly weak policy announcement won’t change that one bit. This is just tinkering around the edges,” she said, adding that everyone had seen how reluctant the Government were to use its existing powers in the Carillion case..
Greg Carter, founder and Chief Executive of Growth Street, asked if these measures go far enough and urged Paul Uppal to promote more use of trade credit insurance by SMEs, which cover failures to pay, and believes the data held by trade credit insurers can give SMEs valuable information about the likelihood of big corporates paying on time or at all.
“No matter how energetic and effective the small business commissioner is, he must be supported with a robust, meaningful, and (crucially) enforceable code,” Mr Carter wrote in a post for City A.M.
While welcoming the Government’s announcements, Andy Chamberlain, the Association of Independent Professionals and the Self-Employed (IPSE’s) deputy director of policy, said:
“At IPSE, we believe the only way to truly turn poor payment culture around is to fine persistent offenders.
“In our evidence, we will be arguing the Small Business Commissioner should be given this power, and we will be working more closely with the government to end the scourge of late payment once and for all.”
Have your say
The Government’s call for evidence will remain open until 29 November 2018 and the Government is encouraging businesses, trade associations and other interested parties such as academics to contribute.
They are seeking views on what more the Government can do to create a responsible payment culture, including:
• The current experiences of businesses in their payment practices
• The impact of existing measures to improve payment practices and what more can be done to further refine measures and promote good practice
• Whether new measures should be introduced to further encourage a responsible payment culture
Feel you have something to contribute? Find out more about the evidence request and have your say.