SMEs that rely on large companies as clients have always suffered from a power imbalance when it comes to paying bills, and the situation seems to be getting worse. It’s been estimated £266bn is being withheld from SMEs through late payment, and there are signs this has been increasing since the Brexit vote.
Duty to Report
All political parties are promising action, and the Duty to Report measures were introduced in April. Under these, large companies must publish the proportion of their payments made outside the agreed period, and failure to publish will be a criminal offence.
The idea is for SMEs to be able to judge which companies can be trusted. However, as the Federation of Small Businesses and other SME groups have pointed out, companies only payments that are late under the agreed terms have to be reported. Under Duty to Report, nothing prevents a large company from using its power to insist on longer payment terms.
The Effects of Late Payment
A recent survey by the Prompt Payment Directory shows both the practical and psychological effects the late payment culture is having on SMEs. 18% are facing bankruptcy or liquidation and 42% owners have taken out loans as a direct result of late payments, while a substantial proportion have been forced to resort to strategies such as remortgaging their home or delaying payroll.
As might be expected, this is increasing cases of stress and depression among both owners and staff, who are also affected by their employers’ struggles to remain solvent. Besides this, the money tied up in the debtors’ accounts isn’t being released into the economy, creating a knock-on negative effect.
What’s the Solution?
Both the Conservative and Labour parties have promised to tackle the scandal of late payment, with the Tories planning a small business commissioner and Labour pledging to name and shame late payers.
Ultimately, though, these measures will have no effect if large companies are able to use their power to bully SMEs into accepting extended payment terms. The FSB has called on the next government to act quickly to make the worst of these abuses illegal.
Until that happens, an SME that’s agreed to bullying terms can do little till the deadline has passed. After that, though, the company owing the money is a debtor like anyone else. Although major companies aren’t easy to take on, Goliath can sometimes be defeated.
If you’re in this position, get in touch with me to discuss your options.