Craig Beaumont OBE
The time is now for a fair payment culture
At last, we are about to change the world on late and poor payments to small businesses. The prize, economic growth, rests on us creating a new fair payment culture.
In the UK, 99% – or 5.7million – of businesses are SMEs, and only around 8,000 are large firms. But there is a power imbalance reflected in payments in our economy that simply isn’t seen elsewhere. And it’s time to stop it.
FSB’s research shows that over two thirds – 68% – of our 5.7 million small firms suffered a poor or late payment, just in the last quarter. Each payment delayed triggers the need for the small business owner to chase payment for work done on time and on budget; that’s 86 working hours on average, each year. This is two working weeks per year – replicated across the UK economy, adding up to hundreds of millions of working hours, lost.
And it doesn’t just create work. It creates stress for the small business owner and hits them hard at the heart of their business – cashflow. It causes sleepless nights, and pushes people to dip into savings accounts, or to borrow on credit cards or from family and friends. This stops growth, and in the worst instances closes 38 businesses each and every day that would otherwise survive.
FSB caught Carillion, a feted large firm, paying its suppliers in 128 days – we publicised and campaigned around this, but few cared. Six months later, Carillion collapsed as it couldn’t leverage any more free credit from its supply chain. Uniquely, the UK had become a country where it became acceptable to pay small businesses with long and late payment terms.
And that’s why the UK Government’s announcement is so important. We’ve got a great package of reforms coming to tackle the worst practices.
FSB is happy to say that we co-designed these changes – particularly on elevating Audit Committees, toughening 60 days as the absolute maximum for large businesses paying their smaller suppliers, and ending retentions in the construction sector.
We’ve had our shoulder to the wheel on this topic since the financial crash in 2008, which pushed payment terms back and back – and then never recovered. One original aim was to bake 60 days in as an absolute maximum. It was agreed and the UK led the way in the EU at the time to create the eventual directive – but when that directive came back to the UK to be implemented, last minute corporate lobbying hamstrung it. Yes, 60 was in law but it was utterly unenforceable. It did nothing to stop Carillion.
Now, enough is enough. We won’t let that happen again.
Nearly 20 years later, our main message for small firms today is: help is on the way – in the form of the toughest legislation in the G7. In policy terms, this is a late payments ‘bazooka’. For the first time, there will be enforceability and there will be consequences.
Our main message for Government today is: full steam ahead. Hold your nerve, as this will get elusive economic growth we all need to see
Our main message for large firms is: get ready for the change; but don’t wait to be compelled. Sort out your payments approach, now. And, indeed, go further than the new bare legal minimum coming in. If you believe in corporate social responsibility, if you believe in supporting your supply chain, sign up to the Small Business Commissioner’s Fair Payment Code (FPC) to go for 30 days or faster.
Being paid promptly is the only fair option. Taking a pro-supply-chain, fair approach to payments should now be central to having and running a good business in the UK. This isn’t a nice-to-do, it’s fundamental to good business. The Fair Payment Code sets a standard which helps businesses assess and improve their payment practices, and which also builds a consistent and more resilient approach to financial management that will benefit them as much as their suppliers – and indeed is reflected in the Good Business Charter.
To finish, I want to say how proud I am of FSB’s own Finance and Accounts team. I spent three months working with the Commissioner’s team, and our own finance team, to go through the FPC process to sign our organisation up. We won the Gold Award, and the award now has pride of place in our office. The team say, “it’s a great reminder and prompter, for us in finance but also to remind the rest of the organisation that it is an accolade and we must work hard to maintain it by keeping at those high service levels”. That’s what you want to hear from your accounts department!
FSB is an SME and a non-profit, but we’re in many ways a mini-corporate, with a £20m turnover. We’re 52 years old, and we had to go through the systems change process, modernise, monitor and report to check ourselves against the requirements. Our finance team thought the Commissioner’s team were great. We have a weekly payment run, and we pay within fourteen days. And by making a positive decision, our finance team are uplifted and proud of what they do. Now, we need that cultural change across the economy, to build upon the legislative change coming.
So, thanks to the Secretary of State for moving strongly and not being knocked off course. We are about to change the world, and now it’s up to us to change the culture, too.
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