Late Payment Debt Owed to SMEs

It is perhaps cold comfort that this figure suggests an improving trend, from £39.4 billion in 2014 and £32.4 billion in 2015, with BACS suggesting the issue is under control. But Business Matters research still points to 47% of SMEs’ customers and clients being guilty of straying beyond agreed payment terms (down from 59% and 60% in previous years).

However, recently released results from the latest Zurich SME Risk Index are not quite so sanguine, showing that 52% of SMEs are currently affected by the issue of late payments, and they claim that total debt now stands at an estimated £44.6 billion.

Whilst the discrepancies can be explained by the accuracy of the pollsters (ACCORD versus YouGov), the size of their sample (304 versus 1060) and the methodology of the survey (telephone versus online), a 70% increase in the total debt suggests that the issue is still significant, possibly worsening, and in no way can it be said that the tide has turned.

Is Government trying to help?

Small Business Minister, Margot James, has frequently called for a culture of change and was vocal in supporting the voluntary Prompt Payment Code, which was launched in 2016 in a bid to relieve the pressures faced by SMEs.

The government has already attempted to tackle the issue, with the statutory requirement for large businesses to report on payment practices, which came into force in April this year. For many, there is hope that in the long term, the impact of statutory payment reporting will be significant, although it is currently unclear exactly how the reports will be used. The information contained in them appears to be relevant and informative, including:

• Standard payment terms and contractual length of time for payment of invoices
• Maximum contractual payment period
• Process for dispute resolution regarding payment.
• Average time taken to pay invoices from the date of receipt
• Percentage of invoices which were paid in 30 days or less, between 31 and 60 days, and over 60 days
• Whether the organisation offers e-invoicing or supply chain finance

The expectation amongst the SMEs who stand to benefit most is that it is only when the tender process addresses the problem directly, with selection and award questions asking about payment practices (and weighted to place importance on them), that large businesses will take the issue seriously. The administrative burden of this should be easily absorbed by large businesses, as it is only applicable to those with more than 250 employees and an annual turnover exceeding £36 million. For SMEs it will most likely become another tick-box question on an SQ or ITT document, in the same way that short questions around the Modern Slavery Act are included and readily answered with a polite “N/A”. The real concern exists that the legislation will be referenced and paid lip-service by awarding authorities, leaving the SMEs to continue in their role as helpless victims.

Coping with late payments can make survival incredibly difficult for SMEs. Finance specialists, Crossflow Payments, reported in the Construction Enquirer that small contractors in the construction industry have 15% of their turnover tied up in late payments. This acts as a real handbrake on investment, meaning that even paying staff wages can be a struggle.

At Executive Compass, our suppliers will testify that our business is ethical and we are proud of our own payment practices. If you would like to hear more about how we can help your business write winning tenders or succeed in making funding applications in the public or private sectors, please call us today on 020 3507 0314.