Consultation planned on late payments to SMEs

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The government is to launch a consultation on tackling late payments to small and medium-sized businesses.

The consultation, plans for which were outlined this week by the Prime Minister David Cameron, will seek to understand a number of issues, including how greater oversight and responsibility for payment policies at senior management and board level.

It will also consider what can be done to increase transparency around which companies pay on time and which do not, and how the Prompt Payment Code can be strengthened.

A survey of 1,100 SME senior managers from Barclays earlier this year revealed that 85% had experienced late payment over the last two years, and of them 66% had to wait a month for payment, and 11% had to wait six months.

“It’s not right that suppliers are not getting paid on time for the work they do and the services they provide and I know that late payment can have devastating effects on our small and medium-sized businesses,” Cameron said.

“The government has already taken steps to help address this issue but I am clear that more needs to be done to build a business culture across all sectors of the economy that sees the fair, prompt and reliable payment of suppliers become a core corporate responsibility which is taken seriously at the most senior levels.”

Beatrice Bartlay, managing director of specialist staffing firm 2B Interface, said that the government needs to remove the temptation to retain creditors’ cash and work harder to instill a culture of paying on time throughout the supply chain. This includes the norm of paying within 30 days, rather than the 60 days advised by the Prompt Payment Code.

“The ramp up in interest from the UK government around late payments and the significant damage it can do to our country’s small businesses is of course extremely welcome, but perhaps long overdue,” she said. “The previously announced levies that may be imposed will go some way to reduce late payments, but the question is: will it hit the bigger businesses’ back pockets hard enough?

“It’s a very simple premise: the reason the bigger companies hold onto cash for as long as possible is to improve cash flow,” she added. “It can’t be ignored that this is a practice rife among businesses globally but it only serves to harm everyone else down the supply chain. A change in culture and mindset will mean that everybody benefits from better relationships and stronger financial stability.”

The announcement of the consultation comes as the National Insurance Contributions Bill is introduced to the House of Commons, which contains legislation for the Employment Allowance which, from April 2014, will give businesses and charities a £2,000 tax cut off their national insurance contributions bill.