The UK Government recently called for submissions to a consultation focusing on this issue, which followed Labour Party commitments to legislate against it. In fact, Labour shadow ministers recently cited Xero data showing that small businesses lose an estimated £684m a year in time and money chasing payments.
This requires more urgent attention. Whilst there are some actions small businesses can take to reduce the impact like using technology to automate chasing invoices and including payment options like ‘pay now’ to encourage quicker payments, this is a much bigger cultural issue.
Every day we hear about the devastating impact late payments have on small businesses and livelihoods. This isn’t acceptable.
Xero’s Small Business Index showed that on average, small firms were paid 8.4 days late in January: the highest since August 2020. Even national and local Governments are missing their own targets. Sadiq Khan recently acknowledged not hitting payment times to London’s small businesses and 10 Whitehall departments failed to meet (albeit ambitious) targets for paying small firms money they were owed.
When small businesses struggle, whole communities feel the strain. It negatively impacts their ability to invest, grow and employ people in their local areas. We need more policies to protect them.
We would love to see Environmental, Social, and Governance reporting and adding late payments metrics in the social and governance categories. Our new ESG paper argues that this could drive a sea change in corporate behaviour and hold big businesses to account.
Here are some of the recommendations we submitted to the Government and key areas that can help to reduce late payments and protect our small business community:
Build transparency into regulation and reporting – large firms should be required to show how much unapproved debt they carry in their annual reports and be held accountable when they don’t pay on time.
Redefine great workplaces around supplier treatment – firms rightly pay attention to how they treat their people; so what about their supply chains? Let’s expand the definition of a good employer and build payment culture into corporate ESG strategies.
Use corporate reputation and publicity as a sanction – governments and other stakeholders can do more to highlight good practice and expose late payments offenders. For example, creating a ‘late payments’ league to showcase the issue.
Underpin legislation with a fair buyers’ act – introducing new legislation should prevent large firms from increasing payment times for their small business suppliers. Until that passes, 30 days should be considered as the fair level, regardless of what might be agreed in individual contracts.
Rename late payment as ‘unapproved debt’ – let’s stop normalising poor practice. Let’s change attitudes to late payments by showing that larger firms are financing their operations through money that belongs to small businesses. That means introducing ‘unapproved debt’ as a universally recognised term.
We’re speaking to the Government regularly on behalf of the millions of hard-working small businesses across the country. And while legislation is important to protect them, there is a lot more we can do in the short term to improve our damaging payments culture.
