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07 December 2016

FSB report shows stopping late payments could save 50,000 small businesses

  • New research shines a light on the UK’s poor payments culture, which costs the UK economy £2.5bn each year and forces 50,000 small firms under;
  • To change this, FSB argues the Government must put supply chain respect at the heart of its current Corporate Governance drive;
     
  • FSB plan would make boards of larger companies properly accountable for their payment practices, toughen the Prompt Payment Code and task the Small Business Commissioner with tackling supply chain bullying.

The Federation of Small Businesses (FSB) has published a comprehensive report looking at how small firms and the wider economy are affected by poor payment practice.

FSB’s 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 surrounding the UK’s poor payment culture over the past 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 of poor payment on small businesses can be devastating. The 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 profits have been hit. 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 businesses could have been saved, growing the UK economy by £2.5 billion.

Chris Burgess, Chairman of FSB Merseyside, West Cheshire and Wigan, said: 

“There is a real danger that we are creating a business culture in the UK where it is acceptable not to pay SMEs on time. All too often large companies ride roughshod over their small suppliers by not paying them on time or in full, which 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 as far as their cash flow is concerned as they struggle with increasing business costs and an uncertain domestic economy They should not also have to struggle with the stress, time and money required to chase overdue payments from big businesses.”

FSB’s plan includes:

  • FSB highlighting the good and bad practice we find, making the 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.

Chris Burgess continued:

“Our report is further evidence of why it is so important, from an ethical and 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.”