Following the government’s recent Spring Statement, the Federation of Small Businesses (FSB) welcomed the announcement of the first measure to tackle the issue of late payments to small businesses.
This was a move to ensure a non-executive director is responsible for the supply chain through the audit committee of every large business and must report back on their progress through their company’s annual report.
FSB national chairman Mike Cherry said the measure means the end of late payments “could finally be in sight”. This came after the FSB had previously called for the UK chancellor Philip Hammond to help the small-business community that is subject to a late payment crisis, as well as Brexit uncertainty, business rates hikes, pension contribution increases and Making Tax Digital for VAT.
The issue of late payments has long been a problem for small businesses, most of which don’t have the financial resources to fall back on that larger companies do.
Among the problems created by late payment for services or goods are employees being paid late or suppliers being made to wait for payments, potentially straining business relationships. Late payments can also contribute to small businesses struggling to raise the capital needed to make investments to grow the business and valuable time being wasted chasing payments.
Financial advice provider Duff & Phelps recently said the late payment culture is causing low productivity and financial instability. This reaction was prompted by research by Bacs Payment Schemes claiming that small business faced a collective annual bill of £6.7 billion in outstanding payments in 2018, up from £2.6 billion in 2017.
The Office of the Small Business Commissioner recently reported that a third of payments to small businesses are estimated to be late, with an average value of outstanding payments of £6,142. A total of around £14 billion is currently estimated to be owed to small businesses, leading to 20 per cent of small businesses running into cashflow problems.
As well as helping the cause of small businesses, tackling late payments more effectively would also boost wider economic growth, with the Federation of Small Businesses claiming it could add £2.5 billion to the UK economy and keep an extra 50,000 businesses open each year.
However, it seems that more needs to be done, with reactions to the measures announced in the Spring Statement not entirely positive.
Association of Taxation Technicians policy expert Brian Palmer told ContractorUK that the measure won’t make much of a difference to the issue. Palmer pointed out that although large companies are already legally obliged to publish pay data in the public register, “simply tightening reporting requirements by getting them to report it elsewhere doesn’t lead to better practice”.
Contractor body IPSE added that there is a culture of organisations disputing fees during or after the period when payment is due, further increasing the time for small businesses to get paid. There are also suggestions that the voluntary Prompt Payment Code, introduced in 2015, is often flouted.
The government has proposed other measures, including empowering trade bodies to highlight best and worst practices to deliver practical improvements and promoting innovative technologies, such as the latest accounting software, to help small firms manage their payments processes better.
A call for evidence on this and several other proposals close at the end of 2018, so further measures may soon be on the way.
While late payments look like they will continue to be a problem for small businesses for some time yet, the fact that the issue is now being widely acknowledged and discussed by the government could mean a more positive future.