Managing Your Cash Flow

The government weighs in on late payments fiasco with new report

4 min read

05 December 2018

Reporter, Real Business

The late payments issue has been growing over recent months, and with small businesses being most affected, the government has voiced its disapproval by announcing a plan of action to try and stop it.

The government has been giving its ‘two-cents’ to the mounting late payments debate in the UK.

Through the release of a new report from a cross-party coalition of MPs, it seems that Westminster is finally acknowledging the pressures small businesses face in the supplier economy.

At the root of this issue is when larger companies engage in a culture of late payments, which can leave smaller counterparts out in the cold, and at risk of collapse.

But why has this late payments culture been allowed to continue and grow?

It seems that larger companies are failing to understand just how crucial maintaining cash flow is in a smaller business.

Because they don’t have as many resources to keep things afloat, if there is a delay in the payments process, it can threaten the very health and stability of a smaller enterprise.

This fundamental lack of understanding about the fragility of smaller businesses has led to the cementation of this toxic payments culture.

But it’s good news for SME owners, as MPs are finally doing something about it.

A report conducted by the government’s business committee found evidence of  “disgracefully” bad payment practices, particularly within larger companies.

The report also found that this late payments culture has negatively impacted smaller businesses, and in many cases causing them to fold and stunting the growth of many more.

The impetus for drafting the report came after the government received a wave of complaints from businesses following the collapse of construction and outsourcing behemoth, Carillion, last year.

The disgraced company has become a ‘pin-up boy’ of sorts for the anti-late payments movement among SMEs in the UK.

Before its demise, Carillion was known as being what the report calls a “notoriously late payer”.

Using its vast business model as a smoke-screen, the company was able to keep staff, stakeholders and other interested parties in the dark about its precarious financial status.

“FSB has long highlighted that some larger companies exploit the imbalance of power with small suppliers to impose unacceptable terms, exceedingly long payment periods and late payments.” – Mike Cherry, The Federation of Small Businesses

The late payment report went on to find that the construction sector was “rife” with late-payments culture as a whole.

“Eliminating the “scourge” of late payments alone would save 50,000 businesses each year.” – The Federation of Small Businesses

So how can SMEs hope to be protected going forward?

Well, the report has proposed a series of recommendations that should keep larger companies in check when making their payments to smaller suppliers.

“Unless the government brings in a tougher regime for poor payment practices we will choke off the opportunity for SMEs to invest and grow in the future.” – Rachel Reeves MP

The first recommendation is to allow the Small Business Commissioner’s remit to cover the construction industry, giving it the power to actively fine late payments within the sector.

“This sort of behaviour is unacceptable and this cross-party group of MPs has rightly challenged the government.” – FSB

Added to this, the committee has recommended that medium and larger companies be forced to sign the Prompt Payment Code.

“SMEs are placed in a stranglehold by larger companies deliberately paying late and taking advantage of their suppliers, causing these firms financial instability.” – Rachel Reeves MP

So whilst the government is finally listening to the voices of SMEs that have faced near-ruin from late payments, whether these recommendations will actually become impactful policies, we will have to wait until 2019 to find out…