New proposals could expose large businesses that fail to pay suppliers on time, helping small business owners avoid doing business with repeat offenders.
Under a new “traffic light” system, recommended by small business commissioner Paul Uppal, smaller firms will be warned which businesses have a poor record of paying suppliers on time, and those likely to set longer payment terms.
Uppal’s plans would allow smaller suppliers to make informed decisions on who they do business with, as further moves to improve the late payment problem get underway.
Late payment facts
• £2.5bn lost to economy annually
• Average small business owed £24,841
• Causes 50,000 businesses to fold each year
• End to late payments could create 3.4m jobs
Since 2017, large companies have been required to report supplier payment records twice a year, but the late payment problem continues to plague micro businesses and the self-employed.
A recent study of two million invoices revealed that the average small UK business owner is owed £24,841 in late payments on any given day.
Late payments worth almost £25,000 equate to 11 months’ average staff wage, 37 months of mortgage payments or nine family holidays. Meanwhile, around 50,000 small businesses fold every year because of cash flow problems.
Traffic light system
The payment data collected by government will be used to flag businesses with a poor record, with a red flag alerting them to suppliers. Companies which fail to report payment practices will also receive a red light.
From Autumn 2019, the government has said it will only award public contracts to companies that can demonstrate prompt payment to their own suppliers.
The programme could bolster Uppal’s reputation within the small business community, following a quiet 15 months since his appointment. The commissioner currently lacks the authority to distribute late payment fines, and Uppal only managed to recover £2.1m in unpaid invoices on behalf of small business owners in his first year in office.
Proposals for a traffic light system arrive as new survey findings reveal “overwhelming” support among MPs for late payment reform.
According to a recent YouGov poll, 73% of MPs agree with changes to the Prompt Payment Code that were recommended by accounting body AAT.
AAT demands that the code:
- Be made compulsory for companies employing more than 250 employees
- See maximum payment terms halved from 60 to 30 days
- Be supported by a clear, simple financial penalty regime for persistent late payers, enforced by the small business commissioner
The Department for Business, Energy and Industrial Strategy (BEIS) recently backed the recommendations.
Phil Hall, AAT head of public affairs and public policy, called on small business minister Kelly Tolhurst to integrate the recommendations into late payment reform.
“Late payments lead to thousands of insolvencies every year, damage productivity, restrict investment and can also impact on the mental health of small business owners and their employees,” Hall said.
“Government action to tackle this problem, from the voluntary payment code to compulsory but feeble reporting requirements – as well as the creation of a small business commissioner with no real power – have all predictably failed to stem the scourge of late payments.
“With almost three quarters of MPs from across the political divide supporting AAT’s recommendations for payment reform, it’s very difficult for the government to continue to drag their heels and back the status quo. We trust that the Small Business Minister will bear these facts in mind when she considers what to do next.”
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