Public sector bad debt on the rise

Late payment by major public sector contractors to small and medium-sized enterprises continues to worsen, research finds.

According to a study by commercial law firm EMW, the average wait before subcontractors and suppliers get paid by the big public sector outsourcers increased from 40.4 days in 2010 to 42.1 days in 2011, despite central government departments paying 80 per cent of invoices to the big outsourcers within five days.

EMW principal Jodi Tierney says, ‘These figures show that large outsourcers are using their greater negotiating power to force their smaller suppliers and subcontractors to wait longer and longer for payment.

‘This is completely negating the effect of the government’s prompt payment policy, which was created to help SMEs that work for the public sector to survive the recession.’

Many government departments are exceeding targets for prompt payment, with the Department for Work and Pensions, for example, paying 87.9 per cent of invoices within five days, and 98.4 per cent within ten days.

EMW says its research shows those large contractors are sitting on that money, rather than passing it down the supply chain to SMEs.

The 5-Day Prompt Payment policy was introduced by the government in April 2011. Virtually all government departments are achieving targets for prompt payment, but the issue of large contractors failing to pass on prompt payment to their SME subcontractors remains.

Tierney adds, ‘The problem of late payment by major public sector contractors is becoming so endemic that several government departments have set up schemes that allow subcontractors to report serious cases of late payment.

‘Despite government promises of a concentrated effort to improve payment performance by major contractors, these figures show the opposite. The big outsourcers are getting worse, putting small companies that they subcontract the work to under enormous financial pressure.’

See also: Late payments do growing damage to business owners’ mental health – Half of SME owners’ businesses – 23 per cent more than last year – have been teetering on the edge of bankruptcy or liquidation because they are being paid late.

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