Under new proposals being drawn up by the government, large companies could now face fines or court orders if they fail to pay their smaller suppliers on time.
However, according to Know-it, a cloud-based credit management platform, while the changes are welcome and will provide the small and medium-sized enterprise (SME) sector with some much-needed support, more is needed to unravel the culture of late payments across the supply chain.
Lynne Darcey Quigley, Founder & CEO of Know-it, said: “Late payments, an issue which has been exasperated further by the pandemic, have been damaging business cash flow, hampering growth, stunting investment and risking business solvency for many years now. Back in 2018, even before recent the Covid-19 outbreak, the average late payment was 12 days behind schedule, and in 2019 that increased to 23 days. This has served put a particular strain on the SME sector, which accounts for 80% of total GDP, and they have been the first to feel the effects of the substantial deterioration in the average payment performance of larger companies during the pandemic.
The new proposals would see the Small Business Commissioner (SBC) having the authority to order companies to pay their suppliers, either as a lump sum or agreed payment plan, when a complaint against them for late payment has been investigated and eventually upheld. The goal is to help put small businesses in the situation they would have been in had they been paid the full amount on time, while the companies that failed to comply would now face further penalties and fines.
The SBC would also have the power to compel companies to share information during any investigation, as well as launch investigations into suspected bad payment practice, without receiving a complaint from a small business.
According to the Federation of Small Businesses (FSB), around 50,000 small companies close each year due to late payments, while 62% have experienced late payment at some point or other. In a 2016 report, the FSB also estimated that if all payments were made on time there would be a £2.5bn boost to the British economy.