The government’s commitment to pay 80 per cent of undisputed invoices within five working days boosts the working capital of main contractors but does not benefit businesses further down the supply chain, according to a National Audit Office report.
Small and medium-sized enterprises report that in a third of cases their public sector clients take more than 30 days to pay them.
The Ministry of Defence, Home Office, Department for Business, Innovation and Skills and the Cabinet Office reported good performance against the prompt payment commitment, based on the number of invoices paid within five working days of the recorded date of receipt at their bill paying team.
However, the NAO found these departments fail to record the date that many paper invoices – commonly used by SMEs – are first received. When measured from the invoice date, the four departments took between three and seven weeks to pay 80 per cent of the value of paper invoices.
The report stated the departments’ reported good performance is skewed in their favour by a high-volume of low-value electronic transactions with a few large suppliers.
In addition, the NAO stated government officials were unable to locate the original papers setting out the policy objectives and estimated costs and benefits of the five-day prompt payment commitment.
Amyas Morse, head of the NAO said it was “seriously concerned” about the prompt payment performance figures reported by departments.
He added: “UK businesses told us they welcome the government’s commitment to pay invoices early. However, there has been a disappointing lack of effort by government to check whether the implementation of the policy is actually helping SMEs.”
The NAO recommended the Cabinet Office sets out the principal objectives of the five-day payment commitment and its benefits and costs.
“It remains to be seen whether the changes proposed in the Small Business, Enterprise and Employment Bill and secondary legislation will be enough to bring about improvements, not just in public sector payment practices but the private sector as well,” Morse added.