Government prompt payment practice called into question

National Audit Office says SMEs may not be receiving significant benefits from a commitment to pay suppliers within five days

Andrew Cowan/Scottish Parliament Amyas Morse
Amyas Morse

The Government is being urged to improve payments to small companies after an official report found delays across the public sector.

The National Audit Office (NAO) report - which comes as The Journal’s Pay Fair campaign highlights the issue of late payment - said small and medium enterprises (SMEs) were paid more quickly by the Government than the private sector, but in a third of cases, public sector clients took more than 30 days to settle up.

The spending watchdog said business welcomed the Government’s commitment to pay invoices more quickly than the 30 days required by law, but added there was a risk the policy helped main contractors rather than others down the supply chain.

Following the report, the North East Institute of Business Ethics has called on the Government to back up good intentions with action that brings demonstrable benefits to SMEs.

Since 2010, the Government has committed to paying 80% of undisputed invoices within five days - instead of the 30 required by law - as a way of supporting small and medium sized suppliers.

But the NAO, which scrutinises public spending, found that this often ended up boosting the working capital of main contractors rather than benefitting other businesses down the supply chain.

The NAO looked in detail at the Ministry of Defence, Business Department, Home Office and Cabinet Office, and found that their reported performance was “skewed” in their favour by a large number of low value electronic transactions with a few large suppliers.

The NAO estimated that up to £1.8bn worth of invoices in 2013/14 (or 7% of the total value) may have been paid after 30 days by the four departments.

The report also concluded that the Government has until recently shown little strategic leadership in relation to prompt payment.

Head of the National Audit Office, Amyas Morse, said: “There has been a disappointing lack of effort by Government to check whether the implementation of the policy is actually helping SMEs.

“We are also seriously concerned about the prompt payment performance figures publicly reported by departments. These were overstated by the four departments we looked at.

“It remains to be seen whether the changes proposed in the Small Business, Enterprise and Employment Bill and secondary legislation will be enough to bring about improvements, not just in public sector payment practices but the private sector as well.”

Through its Pay Fair campaign, The Journal is encouraging North East companies of all sizes to take a responsible and ethical approach to paying firms within their supply chain.

We are asking firms to sign the Business Ethics Pledge created by the North East Institute of Business Ethics (NIBE), thereby agreeing to join with others to discuss the value of business ethics and to work with each other to transform their working environments for the better.

NIBE co-founder Caroline Theobald said: “The Government’s intention is good, but it’s not enough to have good intentions. It is important to know what happens in practice.

“You can have all the policies in the world, but the question is how you then measure the effectiveness of those policies.”

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