Large companies should appoint non-executive directors responsible for payment practices and supplier relationships to protect small suppliers against another Carillion payment practice scandal.
As part of a three-point plan, the Federation of Small Businesses (FSB) has called for project bank accounts in all major public sector contracts, with proper parliamentary accountability to ensure their use.
And it has called on the small business commissioner to use his new powers to strengthen the Prompt Payment Code, introducing tougher penalties for companies that break the rules.
FSB national chairman Mike Cherry said one way to shift poor payment culture in Britain was through appointing a non-executive director to look after a firm’s supply chain.
This individual could be responsible for chairing a supply chain committee or beefed-up remuneration committee, setting out the results of their work in the annual report.
“We have seen the government take an active role in this space by appointing a non-executive director in each government department who will be responsible for payment practice. We want to see this move expanded to larger companies,” he said.
Cherry described the collapse of Carillion as a “watershed moment that brutally exposed the shocking ways that some big businesses treat their suppliers”.
“The construction giant used its dominant position to squeeze smaller firms with late payments and unreasonable payment terms in an attempt to shore up its own precarious position,” he said.
Many small businesses were never compensated for work they had carried out and some were forced to close, he said.
Cherry welcomed the government’s “proactive” attempts to improve public procurement and stamp out poor payment practices.
These include recent reforms to crackdown on public sector suppliers that fail to pay on time which “send a clear message that paying late is not okay”.
However, he also called for more to be done to ensure private sector supply chains pay on time.
“These reforms are not the silver bullet that will immediately bring an end to the scourge of poor payment practices but they will certainly go a long way to achieving this,” he said.