With smaller firms often the ones struggling with late payments, whoever's appointed has their work cut out for them
For many SMEs, late payments is one of their biggest headaches. According to a study by Bacs, the payments processing company, more than £26bn is owed to smaller companies. Nearly a third said this in turn meant they were paying their own suppliers late while 29% were relying on expensive overdrafts to get by. To tackle the problem, the government has pledged that a new small business commissioner will be appointed this year. But while both main parties back the new role, how effective will a late payment tsar really be and what will be their remit?
So far, this is what we do know. The final appointment will be made by the business secretary, together with a panel that includes Federation of Small Businesses chairman Mike Cherry. And since it’s not a strictly political post, the person who is appointed won’t be an MP. As for their remit, although the commissioner’s timetable hasn’t been mapped out yet, it’s clear that their number one task will be to take on Britain’s late payment culture.
As the Bacs research found, the impact of late payments can be serious for small businesses and the commissioner will have their work cut out for them. When their invoices are left unpaid for protracted periods, this can cause cashflow issues and some small businesses can struggle to pay bills like utilities and staff salaries as a result. There’s also evidence that some companies are even being driven out of business. A study by Zurich, the insurance company, revealed that two-thirds of firms it surveyed said they knew of businesses forced to shut down because of cashflow problems.
But the business community may need some convincing that the commissioner will be able to help them. One recent survey, carried out by research specialists OnePoll on behalf FreeAgent, the software company, suggested that the vast majority of freelancers and micro-businesses aren’t holding out much hope that the commissioner will be able to affect real change. Over half of the small companies that took part in the research said they hadn’t even heard about the new appointment while just 2% thought the commissioner would be effective.
They’ll also have a lot pressure from politicians. Labour has joined the Conservatives in demanding tougher action, with party leader Jeremy Corbyn recently calling for large companies that don’t pay suppliers on time to be banned from putting in bids for public contracts. That being said, the new commissioner will need to exist outside of politics and be able to critically examine the effectiveness of measures such as the prompt payment code: a voluntary agreement aimed at encouraging larger firms to pay their suppliers promptly. Recent moves to strengthen the code will need to be scrutinised closely by the appointee.
As well as late payments, there are also calls for the new commissioner to look at the whole area of financial management and make it easier for SMEs to access financial advice. Research has shown that financial management is a top concern for small businesses nationally, with software company Reckon reporting that 20% of small companies are struggling to manage their finances. The sorts of services that could make a difference to companies include being able to access better advice on areas like chasing up invoices, drawing up realistic business plans and using financial management software.
SMEs are the engine for the growth of the British economy so it’s vital that they're given enough support when it comes to tackling the whole range of late payment and financial management issues.
This article comes courtesy of Basepoint Business Centres, the provider of serviced and managed offices, virtual offices and serviced meeting rooms.