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Late payment has "devastating" effect on SMEs

25 November 2016

Late payment hasThe late payment culture costs the UK economy £2.5bn each year and has put thousands of small firms out of business according to new research from the Federation of Small Businesses.

A new FSB report, Time to Act: The economic impact of poor payment practice , has found that existing policies designed to tackle late payment problems have had "no discernible effect" in the past five years. Small businesses report that, on average, 30% of payments are typically late, compared with 28% in 2011.

According to the report, the impact on small businesses can be devastating. It finds that 37% of firms have run into cash flow difficulties because of late payment, 30% have been forced to use an overdraft and 20% say late payment has hit their profits.

Most alarmingly, the report says that, in 2014, if payments had been made on time and as promised, 50,000 business deaths could have been avoided, growing the UK economy by £2.5 billion.

Mike Cherry, FSB national chairman, says late payment must now be tackled "head on". Payment culture, he said, "is set at board level ... Big businesses should respect the supply chain and stop using smaller businesses as a credit line by delaying payments and applying bullying tactics."

Cherry added: "Uniquely, the UK now risks having a business culture where it is acceptable not to pay SMEs on time. Based on an imbalance of power between large companies and their small suppliers, this now has a chilling effect right across the economy. It's distressing to hear from our members that in 2016 the average value of each late payment now stands at £6,142."

The FSB is urging the Government to take more action and has come up with a plan that includes:

  • FSB to highlight both good practice and bad practice, to make boards of larger companies explicitly accountable for the impact of their payment strategy;
  • Government should devote an element of its upcoming Corporate Governance drive to "supply chain respect", alongside measures on executive pay and workers;
  • The Department for Business, Energy and Industrial Strategy (BEIS) should end the delay in appointing the Small Business Commissioner and ensure this office has a specific remit to tackle supply chain bullying within its "name and shame" powers;
  • The Chartered Institute of Credit Management (CICM) and BEIS should give real substance to the Prompt Payment Code through a "three strikes and you're out" penalty system.

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