The Federation of Small Businesses (FSB) has published a comprehensive report looking at the way small firms and the wider economy are affected by poor payment practice. Our report, ‘Time to Act: The economic impact of poor payment practice’, has found that existing policy interventions have had no discernible effect on tackling problems around the UK’s poor payment culture in the last 5 years. Small businesses report that, on average, 30 per cent of payments are typically late compared with 28 per cent in 2011.
The impact on small businesses can be devastating. Our report shows that 37 percent have run into cash flow difficulties, 30 per cent have been forced to use an overdraft and 20 per cent say late payment has hit profits. At the extreme end, late payments and resulting cash flow difficulties have caused businesses to fail. In 2014, if payments had been made on time and as promised, 50,000 business deaths could have been avoided, growing the UK economy by £2.5 billion – a vital uplift to UK GDP just as business confidence dips amid fears of a weakening domestic economy.
FSB’s plan includes:
- FSB to highlight the good practice and bad practice we find, to make the company boards of larger companies explicitly own and be accountable for the impact their chosen payment strategy has on their suppliers
- Government should devote an element of its upcoming Corporate Governance drive to ‘supply chain respect’, alongside measures on executive pay and workers
- The Department for Business, Energy and Industrial Strategy (BEIS) should end the delay in appointing the Small Business Commissioner pledged in the Queen’s Speech 18 months ago, and ensure this office has a specific remit to tackle supply chain bullying within its “name and shame” powers
- The Chartered Institute of Credit Management and BEIS should give real substance to the Prompt Payment Code (PPC) through a “three strikes and you’re out” penalty system that tackles repeat offenders, and by making the PPC mandatory for the largest firms.
Mike Cherry, National Chairman at the Federation of Small Businesses, said:
“Uniquely, the UK now risks having a business culture where it is acceptable not to pay SMEs on time. Based on an imbalance of power between large companies and their small suppliers, this now has a chilling effect right across the economy. It’s distressing to hear from our members that in 2016 the average value of each late payment now stands at £6,142.
Small businesses have to run a tight ship with their cash flow, and as they struggle with increasing business costs on one hand and an uncertain domestic economy on the other. They should not also have to struggle with the stress, time and money required to chase overdue payments from corporate giants.
This new evidence demonstrates why it’s so important, from both an ethical and an economic point of view, to address this issue head on. Payment culture is set at board level and supplier interest must be represented at the top of the chain. It’s something that CEOs and board members in big businesses must take responsibility for. Big businesses should respect the supply chain and stop using smaller businesses as a credit line by delaying payments and applying bullying tactics.”