FSB calls for urgent payment reforms
2 Jul 2020
A majority of small companies have been hit by late payment difficulties as a result of Covid-19, despite only small minority having terms changed, according to the Federation of Small Businesses (FSB) which wants urgent reforms of payment practices
2 Jul 2020
Its study of over 5,000 SMEs found 62% had been subject to late or frozen payments in the wake of the coronavirus outbreak, seriously stifling cashflow.
However, only 10% of small businesses had agreed changes to payment terms with clients.
Around two thirds (65%) of small businesses that supply to other businesses had suffered late or frozen payments. An almost identical number (63%) of firms in public sector supply chains experienced the same treatment.
Small firms in the wholesale (71%), legal and accounting (62%) and advertising and marketing sectors (62%) were hardest hit in this regard.
The FSB says the research indicates that despite government efforts by to improve procurement practices, which were accelerated following Carillion’s collapse, there is no discernible difference in late payment activity between public and private sector supply chains.
The latest Pay.UK data shows that the sum of late payments due across the country rose 80% to £23.4bn at the end of last year.
FSB says legislation to tighten the regulations around late payment has been stalled during the current crisis.
It wants policymakers to make any big corporation that receives state or Bank of England-backed finance to help it through the current recession sign a supplier charter committing it to payment of small firms within 30 days without exception.
It is also calling for the Small Business Commissioner to be given additional powers to investigate and fine repeat late payment offenders and make 30 days the standard definition of prompt payment as set out in the Prompt Payment Code.
The FSB says there should be a centralised relief pot set up for small firms within government supply chains that have seen payments frozen and, over the long-term, work to ensure 95% of public sector invoices are paid within 30 days.
It also wants Financial Reporting Council guidance amended so that audit committees are required to appoint a dedicated non-executive director with responsibility for reporting on payment practices within annual reports.
Mike Cherry, FSB national chairman, said: ‘Before the Covid-19 outbreak struck, many small firms were already under immense financial pressure because of late payments.
‘With cashflow drying up as the lockdown took hold, this situation has worsened.
‘Sadly, some unscrupulous corporations are trying to inoculate themselves from the impacts of Covid-19 by withholding payments, or even freezing them, at the expense of small businesses.
‘Cash is still very much king for small firms, and withholding it has pushed many to the brink at a time when they’re at their most vulnerable. Our endemic culture of treating small businesses as free credit lines against their will must be brought to an end.’