Supply chain · 26 April 2018

Nine in ten government suppliers have been hit by late payments

The government is committed to spending £1 in every £3 with small businesses by 2022

Poor supply chain practices in the public sector continue to blight small business owners, as new research finds nine in ten government suppliers have been paid later than agreed terms.

The study, from the Federation of Small Businesses (FSB), painted a worrying picture of the growing epidemic, with a late payment culture still evident in both the private and public sectors.

Some 89 per cent of small firms in the public sector supply chain have been affected by late payments, and the situation was reflected across other bodies: 88 per cent of central government suppliers, 91 per cent of local government suppliers and 91 per cent of those supplying public infrastructure projects have all been subjected to late payments.

To counter the rise in late payments across the public sector, the FSB has proposed stronger action against guilty bodies and departments.

Commenting on the findings, Mike Cherry, FSB chairman, said the organisation had uncovered a “shocking failure” in the public sector’s practices.

“The government needs to get a grip if we are to have a chance of stamping out the poor payments culture running rampant in the UK economy,” he said.

“It is unfair and unacceptable that so many small firms, many of which are already struggling with the high cost of doing business, are also being forced to wait for money they are owed for work completed for the public sector.

“The government needs to lead by example and ensure that small public sector suppliers are paid promptly on completion of their work. This starts with the government and its strategic commercial suppliers, making sure that prompt payment is embedded throughout their supply chains.”

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The FSB laid out two radical measures to improve supply chain practices across the public sector. Firstly, to introduce penalties to for departments, agencies and bodies who fail to pay invoices on time. Secondly, those making payments later than agreed terms should be forced to automatically pay interest on outstanding invoices.

Cherry added: “By improving public sector payment practices, the government can bring some fairness to the public procurement process and help reduce the risk of public sector contracts for small businesses.

“Crucially, this would also prevent Carillon-type practices happening again. This is a win-win for everyone involved in the supply chain because when small businesses are used effectively, they are able to create jobs and growth.”

The organisation did welcome steps taken by government to bring more small firms into its supply chain and democratise the procurement process.

Recent figures from the Crown Commercial Service (CCS) have also suggested small business owners are accessing the system more easily – around two-thirds of the 22,000 suppliers signed up to the Contracts Finder portal are believed to be small businesses.

What are public procurement contracts and what do they mean for your small business?

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.