The Small Business Commissioner (SBC) Liz Barclay fears the UK’s late payment crisis “could get worse before it gets better.”
Speaking to the Federation of Small Business’s First Voice podcast, Ms Barclay conceded that more and more small businesses were suffering as a result of late payments “in the current climate”, and was not optimistic about the situation improving any time soon.
Her comments came on the back of findings from the FSB’s Small Business Index which warn that up to 400,000 small businesses in the UK could be at direct risk from late payments - a third of all SMEs currently in operation.
Part of the remit of the SBC is to find solutions to an issue that has dogged British businesses for years now. But Ms Barclay pointed the finger at the difficult post-pandemic economic climate to explain why things seemed to be moving in the wrong direction.
Contractual agreements a ‘big, big problem’
She also argued that the problem was not simply down to invoices not being paid on time. “Quite often it’s about late payments in the sense that contracts have been agreed that allow payment in 60 days, 90 days, 120 days. I’ve even seen 150 days - that’s doing the work, putting the invoice in and then waiting another five months to get paid.
“So there is a big, big problem round about the contractual agreements that are being made between small suppliers and their bigger customers. Small suppliers want the work so they do tend to accept those kinds of payment terms if that’s what’s being offered to them.
“We are seeing more of those extended kinds of terms being offered to small suppliers in the current climate because the bigger customers are waiting to get paid by somebody else who is again paying them later. So it’s a vicious circle at the moment and we fear it is going to get worse before it gets better.”
Ms Barclay said one of the challenges was making larger businesses realise that putting smaller suppliers under severe cash flow pressure with lengthy payment terms would ultimately damage their own prospects.
“We need the bigger businesses to understand that those smaller suppliers are absolutely vital to them,” she explained. “And therefore they need to pay them quicker. We would like to see them paying within 30 days.”
That we can agree with. But after years of campaigning on this issue, one thing that has become very apparent is that polite requests, rational arguments and voluntary schemes are not enough to stop certain firms looking to their own short-term interests and insisting on damaging payment terms.
Until the government steps in and makes 30-day payments mandatory in law, we don’t see any prospect of this stain on our economy being put right.