Tuesday, January 13, 2015

News: Prompt payment to support SMEs

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There is little evidence that the government's commitment to pay 80% of undisputed invoices within five working days is having the intended effect of helping the UK's five million small and medium-sized enterprises (SMEs), according to a report by the National Audit Office (NAO).

Central government spends £40 billion a year on goods and services, of which about £4.5 billion is spent directly on purchases from SMEs. A recent NAO report finds that, while UK businesses welcome the government's commitment to pay invoices more quickly than the 30 days required by law, there is a risk that the policy boosts the working capital of main contractors rather than benefiting other businesses down the supply chain.

The NAO looked in detail at four departments (the Ministry of Defence, Home Office, Department for Business, Innovation & Skills and Cabinet Office) and found their reported performance is skewed in their favour by a high volume of low-value electronic transactions with a few large suppliers.

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As part of the study, the NAO has generated its own estimates, indicating that government suppliers could benefit from reduced interest costs of up to £88m a year as a result of government paying invoices in five working days rather than 30 calendar days. The policy also increases government's working capital requirement, and the NAO estimates this generates a cost to the taxpayer of £55 million a year in increased interest costs on government debt.

The Federation of Small Businesses (FSB), the UK's largest business organisation representing around 200,000 small businesses, believes that the private sector should learn from the Government on prompt payment.

Gordon Millward, regional chairman of the FSB, said: "Many in the private sector still have a lot to learn about paying bills in good time, and the Government has the opportunity to help teach them.

"This new report demonstrates the need to tighten up prompt payment practices right across the economy. Central Government has raised its game and is recognising the absolute priority of paying its suppliers on time, making it a requirement to pay within 30 days. It now needs to use this record to improve the wider payment culture, both in the rest of the public sector and in the private sector.

"It's a scandal that thousands of businesses have gone under because of late payment, with numerous others struggling with their cashflow because of poor payment practices.

"To improve the payment culture, the FSB believes that being a signatory to the prompt payment code must become a prerequisite for supplying the Government. To encourage further a change in culture, Government Departments must also get better at making sure the benefits of their own prompt payment practices are passed all the way down the supply chain and don't stop with the primary suppliers."

NAO website
FSB website

Images: FSB

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