A North East MP has secured a debate at Westminster Hall on the subject of late payments to SMEs under local government procurement.
Labour MP for North Tyneside Mary Glindon is among a growing number of politicians and business organisations to express concern at the issue.
Late payments can often have a crippling effect on small and medium-sized businesses, and there have been numerous calls in recent weeks for a clampdown on companies, and public sector bodies, that fail to meet their obligations.
Glindon has received support from the Federation of Small Businesses in the North East, the chairman of which, Ted Salmon, said: “Late payments is one of the most serious issues affecting FSB members in the North East.
“Late payment volumes have increased over the past few years, rising from £18bn in 2008 to £46.1bn in 2014, in part due to the economic climate but also a wider cultural trend of large companies’ approach to their cash flow.
“We believe that small businesses should be expected to be paid within 60 days. Only in exceptional circumstances should payment terms go beyond 60 days.”
Around 60% of UK SMEs are now experiencing late payments, with the average small business waiting for £38,186 in overdue payments.
One in four SMEs admit that if the amount they are owed grew to £50,000 it would be enough to send them into bankruptcy.
FSB research shows that in 2011, 125,000 businesses were almost put out of business by late payment, and in 2008, 4,000 closed as a direct result.
Salmon said: “A poll of over 8,000 FSB members, conducted in November 2013, found that larger businesses are the worst performers when it comes to either paying on time or early.
“More concerning is that they have the worst late payment record, with small business reporting 51% invoices to these firms being paid late.
“The poll found that late payments led to reduced profitability for firms, firms paying their suppliers late and restricting their business growth.
“The Government recently introduced the Small Business Bill which includes a measure which will allow the Secretary of State to force a business to provide an explanation if a payment is late.
“The FSB supports this as it falls within our broader call for more thorough reporting and a transparent framework around prompt payments as current reporting requirements only produce a ‘snapshot’ of a company’s performance against a single point in the payment cycle.”
The FSB is currently awaiting further details from Government on how the Secretary of State’s power will be used and when further action to strengthen the Prompt Payment Code will be announced, establishing an effective, robust reporting framework to ensure payment practice improves.
“We want to see all signatories clearly state what their maximum and average payment terms and a named contact for small businesses who face difficulties,” Salmon added.
“We’re grateful to Mary Glindon MP for organising this debate in Westminster Hall and look forward to working together to ensure that small businesses across the North East are paid on time.”
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