Judgement day for late payments

This week’s Spring Statement was no ordinary statement. It took place in the middle of 72 hours of voting on the major story of the day, Brexit, and was therefore deeply overshadowed.

What would have been a fairly important event in the UK economic calendar was relegated to a side show as the main drama unfolded centre stage.

And yet for UK small- and medium-sized businesses, there was a highly encouraging take-away from the Despatch Box: the Chancellor’s commitment and growing resolve to address the critical issue of late payments for SMEs.

After all, late payments to SMEs from bigger players can have a toxic, and potentially lethal, impact on them. Not only does the reduced cash flow caused by late payments inhibit a company’s ability to grow, but it can also, in far more cases than many think, send firms to the wall.

Starved of cash, companies can struggle to pay staff, contractors, suppliers, leases and all manner of other bills (not least from HMRC, who are becoming increasingly assertive in chasing them).

Even those firms that do manage to cope with serially late payments are often forced to go into their overdrafts, which means more interest is payable, or take out loans to boost their liquidity.

On the back of big businesses systematically paying their suppliers late for so long, it’s estimated that tens of thousands of businesses annually are going bust. It’s 2019 and this is still happening —it’s beyond a farce.

Tackling the “late payments scourge”

We are currently waiting on more information and details from Greg Clark, the Business Secretary, to be published in the days or weeks ahead.

In the meantime, to tackle “the scourge of late payments”, Mr Hammond announced that, “as a first step, we will require company Audit Committees to review payment practices, and report on them in their Annual Accounts.”

Translate: the Government is going to make late payments a board room, corporate governance and potentially even CSR issue rather than something that is kept firmly under wraps by the finance division.

This type of increased transparency and accountability by those at the top of the supply chain is long overdue.

In December, the latest annual research published by Bacs Payment Schemes showed that a phenomenal £13bn was owed to the 5.7m UK SMEs in 2018 — and that over a third of UK SMEs have unpaid invoices that are two months or more past their due date.

Sensitive issue to address

Part of the problem is that many small and even medium-sized firms do not want to be overly assertive chasing their bigger clients about invoices — and are nervous about issuing, for example, 7-day terms. This is particularly the case if the client does have a track record of eventually paying, albeit three months later than it should.

SMEs know that hounding their big clients can sour an otherwise lucrative and long-term commercial contract and relationship — and so many firms let it slip and just pray for payment soon.

It shouldn’t be like this, and it appears – touch wood — it won’t for much longer. While the Spring Statement was largely overshadowed by Brexit and ‘thin’ from a fiscal perspective, the fact that the Chancellor found time to address an issue that is holding back not just businesses but the broader UK economy is a major positive.

At a time of such political and economic uncertainty, the UK needs its SME backbone to be firing on all cylinders to keep things ticking over and late payments can be a genuine stick in the spokes.

Thankfully, it looks like we are on the cusp of entering a new era of accountability, which will see big firms across all sectors perform a deep spring clean of their supply chains — or have their behaviour on display for all to see.

In the meantime, any SMEs struggling with late payers should speak to their accountant or an independent adviser or platform that can find ways to overcome their cash flow problems, potentially through low cost unsecured loans (many of which are now available up to £5m).

What’s most important is that firms don’t just stand there, fingers crossed.

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