Of all the challenges faced by entrepreneurs on a day to day basis, late payment is one of the biggest. And the burden on our small businesses, in particular, is huge: an estimated £26.8 billion of the total £31.3 billion due in the UK is owed to SMEs.
Research from FSB shows that two fifths (39%) of businesses questioned were on average offered terms longer than 30 days for payment. On top of excessively long payment terms, 43 per cent of firms said they have waited over 90 days beyond the agreed payment date before they got the money they are owed. And shockingly, almost half (49%) reported that they were given no excuse or justification by customers for the delay. It’s perhaps understandable that only one in five FSB members are confident that the UK Government’s Prompt Payment Code is enough to address the UK’s poor payment culture.
The Prompt Payment Code was set up in 2008 to ensure that small companies get paid on time and encourage big businesses to pay their suppliers faster. When asked if they would support a full and independent inquiry into poor payment practices, more than half (60%) of businesses surveyed supported the proposal.
Late payment and poor payment practices are not new, but as the economy gets stronger, it is more important than ever that these are brought to an end. And we are all affected; if businesses do not get the money they are owed, they may not be able to pay their staff, invest in their business or pay their own suppliers. There is a knock-on effect right down the supply chain, which undermines the UK economy as a whole. Late and poor payment practices are holding back our economy and pushing potentially successful firms out of business.
The Enterprise Bill outlined in the Queen’s Speech in May acknowledged the need to maintain focus on small businesses and as part of this, we have also been encouraged by the UK government’s proposal for a Small Business Commissioner to help tackle late payment. However, we also want the Prompt Payment code to have more power to help small firms, so that it is mandatory for the largest businesses to spell out their payment terms, as well as agree to pay quickly. But we also have to address the UK’s payment culture that has enabled the extension of payment terms to become acceptable practice in so many businesses: it’s something that CEOs and board members in big businesses must take responsibility for and put at the top of their agendas. Big businesses must respect the supply chain and stop using smaller businesses as a credit line by delaying payments and applying bullying tactics.
Catherine Ward, Development Manager, North East Scotland
Federation of Small Businesses