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Government Should ‘Step Up To The Mark’ On Late Payments To SMEs

Late payments put a lot of strain on the cash flow of small businesses

29Apr

Last month’s Budget was a big win for small businesses against all expectations. The Chancellor unveiled a series of welcome reforms, including cuts to corporation tax and business rates. In theory, these changes should leave many business owners better off – an estimated 600,000 small firms will no longer pay business rates, saving each of them £6000 a year. Add to that a higher rate on Capital Gains tax, a £1 billion support package for SMEs through the British Business Bank, and George Osborne’s Budget looks like a great result for UK businesses.

However, the Government failed to tackle the biggest bone of content for small business owners – late payments. According to a survey conducted by MarketInvoice that polled the views of a thousand SMEs in the run-up to the Budget, ‘clamping down on late payments’ was the single most requested initiative. On top of that, just 10% of business owners said that they thought the Government had done enough to protect SMEs from late payment. Despite a clear call for intervention, the Budget failed to address such a wide-spread, long-running problem for so many business owners.

Earlier this year, we delved into the data captured at MarketInvoice over the last five years to produce an in-depth study into the practice of late payment, both in the UK and abroad. Having analysed over 30,000 invoices paid to small businesses from over 80 different countries, we found that 60% were paid late.

What’s more concerning is how far the UK lags behind its international rivals – whilst the proportion of invoices paid late by European countries was 40% in 2015, UK businesses paid 62% of invoices late. Even the USA produced a better record, paying 45.7% of invoices past their due date. This culture of late payment seems to be especially toxic in the UK, with the big high-street supermarkets and retailers treating suppliers the worst. On average, high-street retailers paid invoices two weeks late last year. This puts incredible strain on the cash flow any business, and scuppers forecasting. Such a gap in incoming payments can make regular, essential costs like payroll harder to meet. The average UK SME is owed over £31,000 in late payments, but the Government has failed to tackle the problem head on.

The job of solving the late payment crisis has been given to the incoming Small Business Commissioner, as outlined in the upcoming Enterprise Bill back in July 2015. New rules requiring the country’s largest corporates to disclose their payment terms publicly in a bid to improve the situation with ‘name and shame’ tactics were meant to come into force this month. However, Minister for Small Business Anna Soubry has said this will now be delayed until October. Despite the promises, the Government has yet to deliver on any measures regarding late payment.

Now, it’s Anna Soubry, Sajid Javid and even the Chancellor himself who must step up to the plate on late payment. Until then, UK businesses will continue to be strong-armed by large suppliers into restrictive, unfair payment terms. Whilst providers like MarketInvoice can offer businesses a quick and flexible way to advance their incoming payments, the Government must intervene to help small businesses fight their own corner. 

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