The Federation of Small Businesses (FSB) wants policymakers to ensure that large firms who receive Government COVID-19 financial help pay their small firm suppliers within one month.
As part of its current calls, the FSB wants to make any big corporation that receives state or Bank of England-backed finance to sign a supplier charter committing to this payment term.
It also wants it to work with the BoE to shore up supply chain finance and ensure said finance is used to pay small businesses swiftly.
Almost two thirds of small businesses (62 per cent) have been subject to late or frozen payments during the pandemic.
FSB’s new report, ‘Late Again: how the coronavirus pandemic is impacting payment terms for small firms’, reveals that only one in ten small business have agreed changes to payment terms with clients. That means that most of the recent examples of poor payment practices have not been formally signed off by creditors or debtors.
Despite efforts by the Government to improve procurement practices since the fall of Carillion, there’s been no significant difference in late payment activity between public and private sector supply chains.
A whopping 65 per cent of small businesses that supply to other businesses have suffered late or frozen payments. An almost identical 63 per cent of businesses in public sector supply chains have experienced the same treatment. Small firms in the wholesale (71 per cent), legal and accounting (62 per cent) and advertising and marketing sectors (62 per cent) have been the hardest hit in this regard.
FSB national chairman, Mike Cherry, said: “Before the COVID-19 outbreak struck, many small firms were already under immense financial pressure because of late payments.
“With cash flow drying up as the lockdown took hold, this situation has worsened. Sadly, some unscrupulous corporations are trying to inoculate themselves from the impacts of COVID-19 by withholding payments, or even freezing them, at the expense of small businesses.
“Cash is still very much king for small firms and withholding it has pushed many to the brink at a time when they’re at their most vulnerable. Our endemic culture of treating small businesses as free credit lines against their will must be brought to an end.
“If the small firms that make-up 99 per cent of our business community are to play the fundamental role we need them to in ending this recession, this behaviour must stop. The Government promised to act a year ago. Time is running out – we need to see delivery.”