There’s no doubting that late payments have a huge impact on our small businesses: any blow to their cashflow can be terminal. Indeed, a parliamentary enquiry last year found that SMEs were owed more than £36bn in late payments: a truly staggering amount. Suffice to say, the government has recognised the raw deal that SMEs are getting from their larger counterparts and, following an extensive consultation on the issue, it has laid down the plans that may see smaller firms start to get paid on time more regularly.
Announced today by Vince Cable, the business secretary, were a set of measures designed to create a level of transparency that should go a long way to easing the late payment woes of our burgeoning young enterprises. “For too long too many companies have been getting away with not paying their suppliers on time to maximise their profits,” said Cable. “It is small business that is suffering as a result and it needs to stop.”
Most notable among the proposals is a requirement for larger firms to publish their payment practices, whilst the government will also act to remove legal barriers preventing firms from accessing invoice finance. It will work with the Institute of Credit Management (ICM) to strengthen the Prompt Payment Code and increase the accountability of signatories, but hasn’t gone as far as to enforce 60-day payments. Many have expressed their disappointment that the government has ruled out fining firms for late payment.
John Allan, national chairman of the Federation of Small Businesses (FSB), claimed the test would be whether the big companies that sign up to Prompt Payment Code actually start to pay within 60 days. “Late payment is no longer acceptable and is damaging growth and job creation,” he said. “Whether these measures go far enough without calling for a statutory code will be determined by how big companies respond to today’s announcement and change their culture.”
PCG, the freelancing organisation, goes one step further. It believes that legislation is the only way to successfully stop late payments. “In order for it to be effective, the Prompt Payment Code must be compulsory for large companies and it must include sanctions for the worst offenders,” said Simon McVicker, director of policy and public affairs at PCG. “The reality is that the only way to ensure big companies pay up on time is to take direct legislative action.”
Has the government gone far enough? As Allan suggests, let’s just wait and see.