A radical overhaul of the way large companies pay smaller ones for their services must be led by the goverment and become the heart of of its drive for corporate governance.
That’s the claim made by small busines organisation the FSB whcih claims up to 50,000 businesses fail each year because they are cash-starvd by late payment.
A new plan from the UK-wide body calls for the boards of larger companies to be properly accountable for their payment practices, a toughening of the Prompt Payment Code and tasks the Small Business Commissioner with ending what it terms ‘supply chain bullying’.
Publishing ‘Time to Act: The economic impact of poor payment practice’ the FSB said it represents a comprehensive report into the way small firms and the wider economy are affected by poor payment practice.
It says existing policy interventions have had no discernible effect on tackling problems around the UK’s poor payment culture in the last five years, with small businesses reporting that, on average, 30% of payments are late compared with 28 per cent in 2011.
“Uniquely, the UK now risks having a business culture where it is acceptable not to pay SMEs on time,” said FSB Northern Ireland regional chairman John Friel.
“Based on an imbalance of power between large companies and their small suppliers, this now has a chilling effect right across the economy. It’s distressing to hear from our members that in 2016 the average value of each late payment now stands at £6,142.
The impact on small businesses can be devastating, he said as the report reveals that 37% have run into cash flow difficulties, 30% have been forced to use an overdraft and 20% say late payment has hit profits.
At the extreme end, late payments and resulting cash flow difficulties have caused businesses to fail.
In 2014, if payments had been made on time and as promised, 50,000 business deaths could have been avoided, growing the UK economy by £2.5 billion the report claims.
“Small businesses have to run a tight ship with their cash flow, as they struggle with increasing business costs on one hand and an uncertain domestic economy on the other,” said Mr Friel .
“They should not also have to struggle with the stress, time and money required to chase overdue payments from corporate giants.”
As part of the campaign the FSB plans to highlight both good and bad practice in an effort to make the boards of larger companies explicitly own and be accountable for the impact their chosen payment strategy has on their suppliers
It has also called for government to devote an element of its upcoming Corporate Governance drive to ‘supply chain respect’, alongside measures on executive pay and workers
The Department for Business, Energy and Industrial Strategy (BEIS) should end the delay in appointing the Small Business Commissioner pledged in the Queen’s Speech 18 months ago, and ensure this office has a specific remit to tackle supply chain bullying within its “name and shame” powers, it added.
“This new evidence demonstrates why it’s so important, from both an ethical and an economic point of view, to address this issue head on,” said Mr Friel.
“Payment culture is set at board level and supplier interest must be represented at the top of the chain.
“It’s something that CEOs and board members in big businesses must take responsibility for.
“Big businesses should respect the supply chain and stop using smaller businesses as a credit line by delaying payments and applying bullying tactics.