Poor payments are an issue that so many UK SMEs can relate to, with 84 per cent saying that is a problem they regularly experience. What’s more, research shows that 50,000 UK firms cease trading every year because of the late payment crisis, costing the economy £2.5 billion.
In an effort to combat the late payment culture which is crippling SMEs, the Federation of Small Businesses (FSB) has launched its Fair Pay Fair Play campaign*, which highlights three reforms needed to end the crisis.
Firstly, the FSB is campaigning for ownership of all firm’s payment practices to start from the top, with the help of a Non-Executive Director who would have responsibility for payment practice and supplier relationships, and be required to provide a summary of their activity for the company’s Annual Report.
Secondly, the FSB says that measures should be put in place for stronger payment enforcement for those businesses that behave poorly when it comes to payment practices. This includes making the Prompt Payment Code mandatory for all FTSE 350 companies, and fines for companies that do not adhere to the Duty to Report requirements. Adding to this, the FSB is campaigning for the Small Business Commissioner to be given the ability to undertake mystery shopper style investigations into the payment practices of large firms, including verifying duty to report on payment practice data and investigating supply chain bullying.
Finally, the FSB is calling for Project Bank Accounts to be adopted as the truly default choice for major procurement projects, with proper parliamentary oversight to ensure accountability. This, the industry body believes, would ensure that small public sector suppliers are being paid promptly on completion of their work.
Commenting, Mike Cherry, National Chairman of the FSB, says: “These reforms are not the silver bullet that will suddenly signal the end of poor payment practices but are certainly important and necessary steps towards this. I am calling on all politicians and big businesses to back these reforms and show that they believe in fair pay and fair play.
“This problem isn’t a new one and despite some positive action from Government, far too many of our small firms are still subjected to late payments and bullying from some big businesses who take advantage of their dominant position.
“These big businesses use tactics such as extending payment terms, retrospective discounting and even going as far as asking for a discount if they pay on time.
“Poor behaviour like this has forced many small businesses to take drastic steps including having to use personal credit cards and overdrafts, just to survive the wait for a payment. Sadly, some don’t survive this wait.”
In the interest of fairness, he goes on to say that poor payment practices span both the private and public sector with suppliers across the board saying that they have been paid late. This, Mr Cherry says, is “unfair and unacceptable – Government need to be leading by example on this issue”.
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