UK government takes bold action to protect SMEs

With SMEs accounting for 99.9% of UK businesses, steps must be taken to protect the heart of the UK economy, says Malcolm Harrison, group CEO, CIPS

According to the UK’s Federation of Small Businesses (FSB), SMEs play a more significant role in the UK economy than many realise, but are often overshadowed by the achievements of big corporates. At the start of 2018, the FSB identified that 99.9% of businesses in the UK were small and medium-sized, employing 16.3 million people and with a combined turnover of £2 trillion. Successful SMEs become the large businesses of the future and as the lifeblood of the UK economy it is essential they are nurtured, protected and encouraged to remain in business.

But, according to UK government data analysed by CIPS, on average, large businesses pay almost a third (31%) of their invoices late. That’s huge. Late payments cause insolvencies, stress and thousands of SMEs to go out of business each year. 

SMEs, with their limited resources and fear of being passed over by the customers they need, are often reluctant to make too much of a fuss over late payments and there is strong evidence to back this up. As of April 2019, The Small Business Commissioner had only received 125 complaints in the 15 months since he took up his post. That’s a strong barometer showing the lack of appetite small business owners have to challenge their larger company customers who have not paid them promptly.

The government has acknowledged the issue and has taken steps to tackle delayed payments and encourage more responsible targets for those concerned. The government has held a late payment database for some time, in which large companies are required to report their payment terms and performance to suppliers. This is accessible to all, but has been woefully underused – even by SMEs who could access the database to choose who to avoid by identifying the worst performers. SMEs can search the database to find out the average time it takes for large businesses to pay their suppliers and the proportion of payments that a particular business does and doesn’t pay on time.

Even if the database was regularly checked, it is still not the complete solution. CIPS research found that as of April around 1000 businesses were flouting the law by failing to submit late payment data in the first place. The database should be properly policed and businesses who do not submit their required information should be held accountable. 

The lack of tangible change that has come about as a result of the late payment database shows that transparency alone will not tackle this problem and more needs to be done to encourage more responsible payment practice. For instance, the implementation of fines is unlikely to have an impact on larger businesses. These organisations see fines as a cost of doing business in an increasingly complex world. So what else is there?

The UK government’s recent public statement that it intends to stop working with businesses that don’t pay their suppliers on time is a huge sea change and shows real commitment and action behind the words. It might just work if the government continues to keep the pressure up and rewards the better payers. In addition, when the Small Business Commissioner went public and named and shamed Holland & Barrett, a health food chain and serial poor payer, others in the retail sector and beyond started to sit up, take notice and examine their own practices.

In Australia, the government is committing to paying suppliers within 20 days and encouraging big businesses to follow suit (see Time’s up for late payers).

Governments across the world seem to be stepping up the fight against late payments and the havoc it can unleash, not only on small businesses, but on organisations of every size. Their influence will hopefully trickle down to business to take action too. If you run businesses in a sound and responsible fashion, you should pay suppliers on time and be a beacon of good practice.

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