Late payment has always been an issue for SMEs, but when the economy gets tighter, it will cause some businesses to stutter or even fail completely.
It has always been my view that for a fair day’s work, you should get a fair day’s pay, be that employees, or businesses that provide other firms with products of services. It’s a transaction that’s as old as time and keeps the economy moving.
But when a customer fails to meet agreed payment terms, it significantly impacts cash flow. And, of course, late payment doesn’t just affect one business, it has a ripple effect that impacts on others too. If one firm is waiting on payments it can prevent it from paying its own suppliers, grinding the wheels of commerce to a complete stop.
The government introduced a Small Business Commissioner a few years ago with the main purpose being to challenge the culture of late payment, alongside a Prompt Payment Code, which companies, particularly large ones, were encouraged to sign up to.
All large companies have a duty to report on their payment policies, practices and performance. This reporting process isn’t built into the financial reporting requirements of these companies, which leads to many continuing to pay their suppliers late.
In addition, the Commissioner’s office began to ‘name and shame’ companies that failed to pay their small suppliers, but that seems to have had little effect.
It is believed that currently three in five SMEs are waiting on cash that’s tied up in unpaid invoices. Of the £20bn that is outstanding to firms of all sizes, late payment is costing small firms roughly around £684 million a year.
Labour have spotted an opportunity to capture the small business vote with a policy that would bring in legislation to make big businesses report on their payment practices in their annual reports. This would require audit committees to report on late payments, making boards more accountable and providing further clarity for smaller businesses.
Whether Kier Starmer finds himself behind the desk of Number 10 and whether this policy ever sees the light of day is another argument altogether. What it does show is that late payment is still an issue and isn’t going anywhere soon.
This is frustrating because, as we all know, SMEs are what make this country great, and if their businesses are hit by cash flow issues due to late payments, they’ll start to wither on the vine and die, leaving the country short of the enterprising firms it so desperately needs.
Small firms need regular and consistent cash flow to survive. If they can’t get the money for the work they do, wages don’t get paid, investments can’t be made, and any prospect of growth is well and truly snuffed out.
We cannot afford for this to become a greater epidemic after so many small firms were able to survive the pandemic and have the cost-of-living crisis and an expected recession to navigate too.
The only way to get the big companies to sit up and take notice is to hit them where it hurts, right in the wallet!
Payment terms from large companies to SME suppliers have to be legally enforceable and when broken, without agreement, have to incur big fines.
And that cash needs to be put into a pot that small businesses can apply to receive as grants to keep it where it belongs, not in the Treasury coffers, but at the sharp end of the economy helping SMEs grow.
