Government reforms to pressure large businesses to pay small business suppliers on time do not go far enough, say experts.
Small Business Minister Kelly Tolhurst announced yesterday that entire corporate boards will be culpable if large businesses do not pay SME suppliers on time, not just finance directors, as previously mooted.
Large businesses could also be fined for failing to pay small and medium-sized business suppliers on time, as part of a Government crackdown on SME late payments.
The Small Business Commissioner could have beefed-up powers to tackle SME late payments and enforce binding payment plans.
However, the Government has ducked compelling large employers to sign the Prompt Payment Code and to close the late payments window under the code from 60 to 30 days, say professional bodies.
Malcolm Harrison, group CEO of The Chartered Institute of Procurement and Supply (CIPS), said: “More change is necessary. It is important we do not stop there and continue to drive down lengthy payment terms in supplier contracts to ensure SMEs are able to manage their cash flows, to grow their businesses and remain productive.”
Lengthy payment terms
Peter Kubik, partner at accountants UHY Hacker Young, said: “New proposals do not get to the roof of the problem as large businesses could still operate with lengthy payment terms. At present, there is no hard and fast definition of what ‘unfair’ payment terms are, so a lot of businesses at the top of the supply chain could operate with 90-day terms. This can be tough on SMEs who have tighter margins.”
Previse, the UK fintech which uses AI to tackle the slow payments problem, says that the code does not require firms to separately provide information on payments to SMEs and large suppliers separately.
“That means issues faced by small sellers, such as the fact they are paid around 60 days later than corporates, are obscured,” said Paul Christensen, CEO of Previse.
UHY Hacker Young is also sceptical as to how afraid large companies will be of being fined if the fines are not large enough.
Kubik said: “Whilst a deterrent for businesses, these fines do little to help recipients of late payments. For those small businesses who have already waited three months to get paid, the damage has already been done.
“There is also the worry of whether the fines will be substantial enough to deter large businesses from delaying payments to suppliers.”
Almost a quarter of insolvencies (23pc) are caused by late payment issues, according to the Association of Accounting Technicians.
Late payments force 50,000 SMEs out of business every year.
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