Government urged to take stronger action on late payment

The Federation of Small Businesses (FSB) has set out recommendations for the government to end a culture of late payment and supply chain bullying.

Ahead of the chancellor’s Spring Statement in March, the FSB has launched its “Fair Pay, Fair Play” campaign calling on the government to use the opportunity to ensure small businesses are being paid fairly and promptly and setting out recommendations to achieve this.

The FSB has warned that poor payment practices extend throughout the UK, with four out of five (84%) small businesses within supply chains claiming to have been paid late, while 60% of the late-paid invoices are for amounts greater than £1,000.

Mike Cherry, national chairman at FSB, said that far too many small firms are subjected to late payments and bullying from some big businesses who take advantage of their dominant position.

In order to ensure small businesses are treated fairly, the FSB has called on the government to force the UK’s biggest companies to appoint non-executive directors for payment practice and supplier relationships who can provide a summary of activity for the company’s annual report.

Ministers have been urged to introduce stronger enforcement for businesses with poor payment practices including a mandatory adoption of the Prompt Payment Code for large businesses and fines for failure to publish legally required payment data.

The FSB has also called for the adoption of project bank accounts for major procurement projects with parliamentary oversight to ensure the prompt payment of small public sector suppliers on completion of work.

Cherry said: “These reforms are not the silver bullet that will suddenly signal the end of poor payment practices but are certainly important and necessary steps towards this.”

The FSB in Scotland has also called on the Scottish government to bar companies who are regularly failing to pay small businesses from being awarded devolved public contracts.

The FSB has urged public bodies to ask large potential suppliers for evidence that they pay responsibly before awarding taxpayer funded contracts.

The call comes as an FSB survey found that one in three (36%) Scottish businesses have run into cash flow difficulties as a result of late payments, while the average value of each late payment owed to a Scottish firm is £5,718.

According to Andrew McRae, FSB’s Scotland policy chair, while the “lamentable payment culture” experienced by Scottish businesses isn’t new, the possibility of upcoming economic turmoil could see more large businesses using SMEs as a free source of credit.

He said: “It is clear that late payment makes it more difficult to run a business in Scotland. In addition to seeing action from government, we need to see leaders of big businesses in Scotland take responsibility for how their companies treat their supply chains.”

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