The Federation of Small Businesses recently found that nine out of ten public sector suppliers have been paid late and is calling for urgent action to address late payments to small businesses that have won government contracts.
It has been a prevalent issue for many months that small firms require faster payment from larger organisations, including public-sector bodies, as issues in the supply chain are putting smaller firms at risk.
Although a government objective is to encourage small firms and make it easier for them to bid for contracts, the late payments may actually discourage them from tendering.
Government prompt payment policy
In 2015, the government introduced measures to tackle late and unfair payment practices in the public sector, managed by the Crown Commercial Services and the Cabinet Office. The policy covers several aspects to drive prompt payment of invoices:
- Public Contracts Regulations 2015, advising statutory guidance for buyers and suppliers on paying undisputed, valid invoices within 30 days throughout the supply chain
- Central Government Prompt Payment Policy, committing to paying 80% of invoices within five days
- Electronic invoicing
- Late Payment of Commercial Debts Act 1998, whereby suppliers can claim interest on late invoices
- Prompt Payment Code
- CCS Mystery Shopper Scheme
Could repeat offenders be excluded from bidding into the public sector?
The Government has an important role to play, spending £200bn on goods and services from UK suppliers in the private sector each year. It is a large customer in the market and must set a good example to other buyers – part of which is on-time payments.
Following the recent collapse of Carillion, it has been found that over 50% of subcontractors still suffer from bad debt, with the average firm writing off £16,000 each year. It is apparent even more can be done to tackle bad debt and late payments to avoid similar situations in the future, which affects not only the small businesses involved, but the extended supply chain.
It has been discussed that firms who are renowned for late payments could even be excluded from all public sector tender competitions. Companies will have to show that they have fair and effective payment practices in place, otherwise they may be excluded from bidding altogether.