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Small and medium-sized enterprises are routinely paid late by large customers, but often feel uncomfortable about making a fuss. SMEs’ fears they may jeopardise future work by complaining or taking legal action to seek redress offer serial late payers a free pass – they can carry on settling their bills late with impunity.
In that context, new regulation from the Government that will effectively force large companies to name and shame themselves on late payments is welcome. In this week’s Spring Statement, Philip Hammond announced that company audit committees will in future have to publish detailed accounts of their payment practices and performance in their annual reports. The Chancellor is also insisting that companies nominate a specific non-executive director to take responsibility for the supply chain.
By forcing companies to shine more light on how frequently they pay their bills on time, the Chancellor hopes to persuade more businesses to clean up their act. And the requirement to appoint a non-executive director to this role should make it easier to hold companies to account on their performance.
Certainly, small business groups are delighted by the Chancellor’s moves. “The end of late payments could finally be in sight,” says Mike Cherry, national chairman of the Federation of Small Businesses. “It can’t come soon enough, to bolster small businesses at a time when they are in great need of support and a lift in confidence.”
He’s right of course. The FSB itself says four in five small businesses are routinely paid late, with the typical SME owed £6,142 in overdue payments. It thinks as many as 50,000 firms a year are going out of business because of problems related to late payments.
The group’s figures are supported by independent analysis. Bacs Payment Schemes, the organisation that runs transactions between banks, has calculated that 5.7 million SMEs in the UK are owed about £13bn in total.
However, small businesses shouldn’t expect those figures to improve overnight. Despite the warm welcome for the Chancellor’s latest efforts to crack down on late payments, a series of similar initiatives in recent years have failed to make much of a dent in the problem. Large companies already face more onerous reporting requirements on their payment practices, while an independent complaints system set up to help SMEs pursue late payers has heard only a handful of cases.
Moreover, one very simple way for companies to get around action to tackle late payments is to redefine what late actually means. The purchasing power of larger businesses often enables them to impose payment terms on the SMEs with which they transact. And more than a third of small businesses say larger companies have changed their payment terms in the past two years in order to enable them to settle bills later.
Every little helps, of course, and further measures to tackle exploitation of smaller companies should not be sniffed at. But it seems doubtful that this is a problem that is going away any time soon. In reality, SMEs are going to have to continue to fight their own corner – even where that means some tricky conversations.
March 15, 2019 at 09:08AM
Forbes – Entrepreneurs