A recently published Late Payments Report makes 11 recommendations that MPs believe could help small businesses to receive what they are owed more promptly from their big-business customers.
MP for Oldham East and Saddleworth Debbie Abrahams convened and chaired a cross-party parliamentary inquiry into the issue of prompt payment for small businesses, which heard evidence from several large FTSE companies, as well as affected SMEs.
The inquiry's report makes 11 recommendations that could help to keep small businesses' cash flow looking healthier, including:
- Government-promoted 'good practice' on supply chain management for large firms.
- Businesses encouraged to publish information for shareholders on ethical practice
- Free, high-quality advice for SMEs on financial management and handling late payments
- Establish/develop trade associations to negotiate a Fair Treatment Charter or similar
- Update the Prompt Payment Code in light of the inquiry's findings
- A Construction Code of Conduct and client funds held in escrow for construction firms.
- Introduce a Retentions Monies Bill with client funds held in trust for a supplier
- All new government contracts to require pre-qualification on past payment performance.
- Fair payment on government contracts: 14 days (Tier 1); 19 days (Tier 2); 23 days (Tier 3)
- Support for trade associations acting for suppliers under the Late Payments Directive
- Implement a growth strategy focused on the strategic importance of SMEs.
Leading from the front
In a statement on her website, Ms Abrahams says the issue of late payment to SMEs by big firms stems from unethical leadership at the top levels.
"Until top CEOs and their executive board members make a decision to act ethically in business, and treat our small and medium-sized businesses fairly, this problem will persist," she claims.
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She adds that pressure to do this can not only come from completely outside of the company in question, but can also be placed on senior managers by shareholders, who "have a responsibility to hold their executives to account".
Ms Abrahams suggests that late payment, and the impact it has on small businesses, is comparable to headline stories like tax evasion and lucrative pension and bonus schemes for executives, in terms of its impact on the economy and on SMEs.
An economic crisis
The full report notes how the recent economic turbulence, which began in earnest in 2008, has worsened the problems caused by late payment.
In all, an estimated 4,000 businesses have gone bust as a direct result of late payments, during the recessionary period since 2008.
By 2012, £36.4 billion was owed to SMEs in overdue payments, according to figures from BACS, and the report adds that "this problem is getting worse in the current economic climate".
Even with the newly introduced EU Late Payments Directive, many SMEs may not want to impose penalties and other sanctions on their big-business suppliers, out of fear of losing their business.
However, as we always say, if late payment is putting your business's very existence under threat, it is worth taking a fresh and honest look at whether you want to retain the business of a customer who cannot be trusted to pay in full, and on time.
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Image "Money Grew On Trees Late Payment Reminder" by flickr user Wsssst is licensed under CC BY 2.0