Late payment has for a long time been the scourge of small businesses, and this has only got worse during the pandemic. Many businesses are suffering severe cashflow problems as a result, including the risk of closure.
However, there are signs the government is finally contemplating action to help struggling businesses facing this issue.
The Scourge of Late Payments
Most small businesses operate on very narrow margins, so late payers or defaulters have always been a major risk to their cashflow. This can be particularly bad when small businesses deal with major organisations, many of which insist on payment terms that wouldn’t be tolerated from an SME.
According to the Federation of Small Businesses (FSB), about 50,000 businesses close every year as a result of late payments. This has escalated into an emergency during the pandemic, with over half of small businesses reporting that late payments are stifling their ability to introduce new initiatives.
According to FSB National Chairman Mike Cherry, “We know that paying small businesses late is debilitating, and the practice has increased during COVID-19. It deprives small firms of cashflow, holds back growth, undermines productivity and forces many to take out external finance.”
The Government’s Initiative on Late Payments
There are signs, however, that the government is finally considering action on this issue. They’ve launched a consultation aimed at giving the Small Business Commissioner extra powers to clamp down on late payment.
The proposals announced by Small Business Minister Paul Scully include powers to order companies to pay outstanding sums, with fines imposed for failure to do so. They can also compel companies to share information and charge them costs if they’re found culpable. In addition, the Commissioner may be given powers to investigate late payments more widely, without a complaint required.
What Does This Mean for You?
With the threat of fines and costs being imposed on late payers, this could eventually make a crucial difference to struggling small businesses — assuming, that is, the proposals end up being implemented in full. As James Martin, Director of Policy for Chambers of Commerce, puts it, “the real test of any reforms will be whether anything changes for firms across the country struggling to manage their cashflow because of this issue.”
In any case, the best-case scenario is that the process of consultation and drawing up the regulations won’t be quick. In the meantime, the best strategy for small business owners is to have an efficient and proactive system for identifying and chasing overdue invoices. Give me a call if you need help with this.