Using data from its member survey of more than 8,000 companies, the Federation of Small Businesses (FSB) says that 51 per cent of SMEs providing goods or services to larger private sector businesses were paid late in the last 12 months.
The FSB therefore calls on the government to strengthen the Prompt Payment Code to make it easier for firms to complain about payment terms, and for a culture change among large companies who repeatedly pay late.
“As the economy gets stronger, we must do everything we can to help businesses, and late payment is an issue the government and large businesses must tackle,” says John Allan, national chairman of the FSB.
“Small businesses simply can’t be expected to lend interest free to their large customers, which is in effect what extended payment terms and late payments results in. This is as much a policy issue as it is a cultural problem within UK business. Government needs to get its policy on this right but as the biggest buyer in the UK, it should also exemplify best practice in paying its suppliers in a timely manner.”
Late payment is hurting SMEs
For those firms affected, being paid late or on extended terms hits them hard, the research shows: it means reduced profitability (34 per cent), paying their own suppliers late (32 per cent) and restricting their business growth (29 per cent).
The FSB is urging the government to consider re-launching the Prompt Payment Code (PPC) website and to promote more widely the existing “challenge” function – where small firms can complain about a firm signed up to the code it feels isn’t a prompt payer.
Additionally, to strengthen the PPC, the FSB wants to see all signatories clearly state what their maximum and average payment terms are as well as a named contact for small businesses who face difficulties. As included in the EU Directive enacted in the spring of last year, only in exceptional circumstances should payment terms be more than 60 days.
“We have urged the government to look at strengthening the Prompt Payment Code so it is mandatory for the largest businesses to spell out their payment terms, as well as agree to pay quickly, and for large businesses to take seriously their responsibility to pay on time,” explains Allan.
“This, we believe, would mean few would look to change their terms and ask for discounts. Furthermore, by strengthening the complaints process more firms will look to stand up for themselves”