The UK government has launched a review into the “exploitative practice” of late payment.
The review will scrutinise existing payment practices and the measures in place to ensure small firms are not being “ripped off” by larger clients.
Business secretary Grant Shapps said the Payment and Cash Flow Review aimed to “unshackle small businesses from [the] exploitative practice” of late payments.
The review will consider the progress made in specific sectors in combating late payments, and will review current payment reporting regulations and the Prompt Payment Code, a voluntary code of practice administered by the Office of the Small Business Commissioner.
Meanwhile, the Good Business Pays Awards, which recognises businesses that pay invoices on time and within 27 days or less over the last 12 months, found only 5% of the 5,158 UK large companies that report payment terms qualified as a “prompt payer”.
Shapps said: “The UK’s 5.5m small businesses are an integral part not just of our economy, but of our communities too, and this government is firmly on their side.
“That many small firms are routinely paid late is intolerable and presents a real barrier to productivity, the creation of high-skilled jobs and ultimately economic growth.
“This review will allow us to build on the success we have had so far in curbing late payment, unshackling small businesses from this exploitative practice and creating a system that is fit for the future. While we crack on with this work, I also want to remind big businesses of their duty to ensure their smaller suppliers are paid promptly.”
UK businesses are owed over £23.4bn in outstanding invoices, the government said. The Federation of Small Businesses estimated earlier this year that 400,000 SMEs will go bust due to late payments, but has since warned this figure could rise higher following the energy crisis.
Terry Corby, CEO of Good Business Pays, told Supply Management: “We need action not another review. There have been no less than seven previous reviews into late payment practices over the past 10 years – and what do we have announced today? Yet another review. Once again, the issue of late payment culture is kicked into the long grass.”
He said when payment reporting regulations were introduced in 2017 around 9,400 businesses reported their payment performance. But government estimates now put that figure at 5,100, despite 10,300 businesses being required to.
“When less than half of companies that are required by law to report are not complying, only a clear regulation with teeth will change the late payment culture we have. If this review can happen fast and this time be implemented, then we have an opportunity to change things for the better.”
The review will also consider how technology can be used to tackle late payments, and how banks can help small businesses manage cash flow.
A consultation on payment reporting regulations will take place, and the role of the small business commissioner – currently Liz Barclay – will be reviewed, considering the role’s effectiveness in improving payment practices.
The Procurement Bill currently going through Parliament also aims to strengthen prompt payments. The legislation sets out the requirement for 30-day payment terms in public sector supply chains, which will help level the playing field for SMEs and encourage more businesses with smaller budgets to bid for public sector contracts.
Overall 270 companies were awarded the Good Business Pays Award, over double the number we awarded last year.
Companies on the list included McDonald’s Restaurants Limited, Pizza Hut (U.K.) Limited, Apple Retail UK Ltd, BAE Systems Marine Ltd and Fulham Football Club Ltd.
Data from Good Business Pays showed FTSE 350 companies are taking on average 37 days to pay their suppliers – with well-known companies such as Diageo, Coca-Cola and Rolls Royce among the slowest to pay invoices.