£23bn late payment crisis deepens through lockdown
By Sarah Wood | 29th June 2020
The Federation of Small Businesses is calling on policymakers and big corporations to bring a debilitating late payment crisis to an end, as the business community looks to emerge from the current recession.
The majority of small businesses (62 per cent) have been subject to late or frozen payments in the wake of the Covid-19 outbreak, according to FSB's latest study of more than 4,000 firms.
Its new report entitled Late Again: How the Coronavirus Pandemic is Impacting Payment Terms for Small Firms, shows only one in ten small businesses have agreed changes to payment terms with clients, meaning the vast majority of this fresh wave of poor practice has not been formally signed-off.
The study shows that, despite concerted efforts by government at all levels to improve procurement practices, there is no discernible difference in late payment activity between public and private sector supply chains.
Around two thirds (65 per cent) of small businesses that supply to other businesses have suffered late or frozen payments. An almost identical number (63 per cent) of firms 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 hardest hit.
The latest Pay.UK data show that the sum of late payments due across the country rose 80 per cent to £23.4bn at the end of last year.
The government originally put forward a raft of late payment reforms in June 2019, which have yet to be implemented.
FSB calls on policymakers to:
- Make any big corporation that receives state or Bank of England-backed finance to help it through the current recession sign a supplier charter committing it to payment of small firms within 30 days without exception
- Give the Small Business Commissioner additional powers to investigate and fine repeat late payment offenders and make 30 days the standard definition of prompt payment
- Establish a centralised relief pot for small firms within government supply chains that have seen payments frozen
- Work to ensure 95 per cent of public sector invoices are paid within 30 days
- Only hand work to Tier 1 contractors if bidders can demonstrate full compliance with the Prompt Payment Code
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 cashflow 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. Worryingly, this behaviour isn't just confined to the private sector: late payment is equally prevalent within government supply chains.
"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."
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