Time is Money: Late payments ‘stifle’ small businesses, report shows
The Federation of Small Businesses (FSB) has released a report that uncovers the true scale of damage caused by the late payments crisis as entrepreneurs say: ‘enough is enough.’
Time is Money: The Case for Late Payment Reform, exposes the insufficient measures in place to hold big businesses to account and calls for a level playing field for smaller firms.
This comes alongside a Department for Business and Trade (DBT) prompt payment and cash flow review, which ends in Spring, and looks at improving arrangements to support small businesses experiencing difficult payment practices.
Findings include on average through 2022, quarter-on-quarter:
- 52% experienced late payment.
- 25% reported increased late payment.
- The most affected sectors include education, construction, administrative, professional, scientific, transportation, IT, arts and human health and social work.
- Small businesses in south-east and east of England, and Northern Ireland were more likely to experience late payments.
The report highlights the impact of late and delayed payment on small businesses and the public’s expectations around prompt payment*:
- 37% of applied for credit to manage their cashflow.
- 62% of the British public say businesses should be paid within a week.
- 55% of the British public would support more controls.
Time is Money contains proposals for the Government, including:
- Give audit committees of large firms oversight of payment practices and reporting on progress in their annual report.
- Publicly commit to limit the maximum payment terms to small suppliers in law by 2027 if the situation does not improve.
- Bar late payers from public procurement contracts.
- Impose 30-day payment terms, which should be a maximum throughout supply chains.
- Mandate the Small Business Commissioner to investigate potential instances of poor payment proactively, instead of only when a complaint has been made.
- Make the Prompt Payment Code (PPC) mandatory for all local authorities.
- Create a new local authorities Payment Practice League Table with financial incentives for those at the top and bottom for England.
FSB Policy Chair Tina McKenzie said: “Enough is enough. Late payments in the UK have continued to spiral out of control, while since 2019 Ministers lost the momentum and enthusiasm to make a difference.
“We now need to reinvigorate this agenda, and to push for growth and productivity – the best way to do this is to sort out the UK’s poor payment culture. Our report highlights the urgent need for change and the importance of fair payment practices, and sets out a clear set of reforms.
“Small firms are already being stretched beyond their limits with rising energy bills, rampant inflation, and a mounting cost of living crisis. Cash flow is already tight, and that is compounded by being kept waiting months for invoices to be paid, which a serious roadblock to growth and investment. This also hinders productivity due to the excessive time and effort expended on chasing late payments. It’s a double whammy that is stifling business success, and in turn holding back the UK’s economic recovery – but is something that’s entirely avoidable.
“Big businesses shouldn’t be using small firms as a bank. It’s time for them, too, to step up and take responsibility for poor payment practices.
“These reforms will make a clear difference to the bottom lines of small firms right across the economy. Thousands of small firms are unnecessarily going bankrupt every year due to late payment practices. We are determined to eradicate this issue and the current Government could use Time is Money as a catalyst for change.”