Opposition demands more action on SME late payment 'scandal'

Labour's Chuka Umunna says the Government must do more to prevent SMEs having to 'bankroll' larger companies...

by James Taylor
Last Updated: 19 Aug 2013
Should the Coalition be doing more to help SMEs get their bills paid on time? Shadow small business minister Chuka Umunna thinks so: in the Guardian today, he draws attention to recent figures from the Federation of Small Businesses showing that SMEs are owed £24bn in late payments, mostly by bigger firms. He wants the Government to be pushing more of the latter to sign up to the prompt payments code, while doing a better job of checking that its own bills are paid on time - via legislation, if necessary. Does the Treasury have the appetite for it?

There's clearly a bit of politicking going on here: Umunna is quick to draw attention to the palliative measures introduced in this area by the previous Labour government, specifically the Late Payment of Commercial Debts Act in 1998 (which allowed firms to charge interest on overdue payments), and the prompt payments code of 2008 (which aims to get FTSE 100 companies to promise to pay suppliers on time, right the way down the supply chain).

Nonetheless, this is a serious problem. The recent FSB research found that nearly three-quarters of SMEs have been paid late in the last year, while 43% are currently waiting on an overdue bill. The Government's commitment to pay all its bills within 10 days has helped, apparently - but 18% said they were still being paid late by public sector bodies. Umunna also quotes data from BACS suggesting that a third of SMEs say that large companies aren't paying on time. This doesn't just create serious cashflow problems. It's also a huge drag on productivity, since the majority now spend between one and six hours a week chasing invoices.

So how can the Government help, exactly? Well, Umunna thinks that it can do a better job of monitoring and enforcing its 10-day payment terms across the board, while the FSB wants every single public body to be forced to operate on a similar basis. It also wants the Government to force all its private sector suppliers to follow the prompt payment code; indeed, Umunna reckons it should be putting more pressure on all our big companies to sign up. He also suggested that the Coalition shouldn’t wait until 2013 to introduce a new EU directive on late payments, which will tighten the rules still further.

One thing’s for sure: when larger firms pay their smaller suppliers late, just because they can, it will often mean that those most vulnerable to fluctuations in their cashflow are effectively subsiding the least vulnerable. For a Government supposedly mad keen on fairness, that’s surely a situation they should be trying to resolve.

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