88 Martin McTague, FSB’s National Vice Chair, Policy and Advocacy, looks at the late payment crisis for small businesses and how the Government needs to do more to address the issue The pandemic has changed the way we work as small business owners. We’ve become more flexible in how and where we do business, adapted our services or products, and had changes thrust upon us with ever-changing restrictions. But, sadly, one thing that has stayed constant for many small businesses is the damaging and debilitating late payments crisis. The fact that this issue exists is ridiculous. You wouldn’t visit your local shop, take your bread and milk, and leave without giving the store a clear expectation of when you might pay – only to send on the funds two months later. So why should small businesses have to suffer this fate when dealing with other firms? The sad fact is, they do, with the estimated outstanding balance of late payments in the UK totalling more than £23 billion according to Pay.UK – although figures do vary, and this is likely a cautious estimate. Thousands of small businesses were already being destroyed by poor payment practice long before COVID-19 hit. Along with unreasonable payment terms and supply chain bullying, being paid late, or outside the agreed payment terms, causes huge issues for smaller firms, which often rely on cashflow. For many, it spells the end altogether. And, unfortunately, matters have worsened. At the beginning of the pandemic, when lockdown took hold and cashflow was drying up, our research found that around two thirds of small firms were subject to late or frozen payments. Not only were small firms having to deal with the immediate impact of a national lockdown, but many were also faced with big corporations withholding or freezing what they owed. Some months on, the situation hasn’t improved. Our latest survey showed that late payment has become worse for around a third of small businesses, with as many as eight percent of small businesses and self-employed feeling that late payment is threatening the viability of their business. With 5.5 million small businesses in the UK, we estimate that a shocking 440,000 could be forced to close their doors this year due to late payment alone. We’ve been campaigning for some time on this issue, and thankfully some positive changes have been made over the last few years. The Prompt Payment Code was strengthened last year to state that signatories need to pay 95 per cent of invoices within 60 days, with a caveat that payments to small businesses should be completed within 30. For big corporations that care about ESG best practice, we’re instilling 30 days as the new normal for responsible businesses. While this is a promising start, it feels like progress has stalled. Despite a consultation on extending the Small Business Commissioner’s powers launching more than a year ago, we are yet to hear any outcome. This is not good enough. If the Government wants an investment-led recovery then it must do more to eradicate late payment, which is holding back small businesses’ ability to invest with confidence. We have called on the Government to ensure that audit committees of large corporates oversee that company’s payment culture. This would make sure that when consumers shop at a big business, or a small firm works with them, they know the business really supports the small business community. The pandemic has, of course, been front and centre of the policy agenda for the last few years. But if we are to see a small business-led recovery, policymakers need to wake up and take action to ensure the late payments crisis is tackled, once and for all. ABOUT FSB As the UK’s business support group, FSB is the voice of the UK’s small businesses and the self-employed. Established over 40 years ago to help its members succeed in business, FSB is a non-profit making and non-party political organisation that’s led by its members, for its members. As the UK’s leading business campaigner, FSB is focused on delivering change which supports smaller businesses to grow and succeed. FSB offers members a wide range of vital business services, including access to finance, business banking, legal advice and support along with a powerful voice in Government. Each year FSB also runs the UK’s Celebrating Small Business Awards. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy and on Instagram @fsb_uk. PAY DELAY
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