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SMEs could be burdened with more red tape if small LLPs not exempt from draft late payment law

Amid the headline-grabbing furore surrounding our exit from the European Union the government announced a positive move that will help make sure small and medium-sized business don't feel the brunt of the late payment culture.
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For thousands of years society has been built on the premise that if you do a job for someone, or sell them something, the transaction is completed with a payment. However, for modern SMEs the wait for payment feels like a millennium. According to the Federation of Small Businesses, the overall level of late payment owed to SMEs stood, last summer, at £26.8bn, with 30 per cent of all payments arriving late in firms’ accounts.

I agree with FSB national chairman Mike Cherry who said that we have “a business culture that feels like one where it is okay for late payment when it comes to small firms”. The FSB reckons 50,000 business deaths could be avoided every year if that culture was changed, which would add £2.5bn to the British economy.

To try and recover money owed to small firms, and boost the economy, the government has announced draft regulations that will see large firms and limited liability partnerships (LLPs), required to publicly report, twice yearly, on payment practices and performance.

This will include the average time taken to pay supplier invoices. While I generally welcome this move, I wonder whether there will be an exemption for the country’s many small LLPs as most will fall into the SME bracket that the government is trying to help. If not, it will just create more red tape and form filling for these small businesses, which are things the government has promised to crack down on.

Before the formation of the current post-referendum government, former business minister Sajid Javid announced the Enterprise Bill, which laid out a strategy for helping new and growing UK firms.

This included a reiteration of the government’s pledge to cut £10bn in red tape by taking an axe to regulation and clamping down on independent regulators, which just added to bureaucracy. I hope this requirement on LLPs doesn’t fly in the face of that commitment.

That said, these regulations are a step towards making large firms think twice about what is essentially withholding payment from those that have provided products and services in good faith.

The government believes that it will put a spotlight on bad practice and lead to improved standards. I hope it is right, but it’s likely that, unless the regulations have any teeth, large businesses, which are often a law unto themselves, will carry on regardless and apologise for indiscretions only when required.

In the same way the naming and shaming of firms that have failed to pay the Minimum Wage has proven to be a successful move for the government, the late payment regulations have similar potential. The only difference is that the Minimum Wage offenders have tended to be small firms, which are less resilient to public pressure than big firms.

A system of hefty penalties should be introduced to hit big firms in the pocket and use the proceeds to give startup grants to boost our small business community.

That would be a worthwhile task to hand to whoever lands the role of the government’s small business advisor from autumn next year making sure SMEs get a paid for the hard work paid in every day.

Image: Shutterstock

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About Author

Charlie Mullins

Charlie Mullins, also an OBE, is the archetypal entrepreneur – having started his business from scratch and then building it into a multi-million pound enterprise. From humble beginnings growing up on an estate in South London, he left school with no qualifications, but after a four-year plumbing apprenticeship he started his own firm, Pimlico Plumbers, which now generates a turnover in excess of £30m and boasts many well-known names among its many clients including Simon Cowell, Helen Mirren and Richard Branson. He has been a regular contributor on Real Business since 2011 and is particularly about apprenticships.

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