Small businesses doing business with giant corporations have traditionally had no choice but to put up with accepting the customer’s payment terms — sometimes having to wait months before getting their money. This can leave their cashflow in a dangerous condition, even threatening their ability to continue trading.
The Chancellor’s Autumn Statement, on 22nd November, addressed this issue. The measures he announced are certainly a step in the right direction, but how much difference will they make.
Late Payments and the Chancellor’s Measures
With all the power on the side of large companies in their dealings with small businesses, long delays in paying money owed can result in serious cashflow issues. At best, these can prevent the small business from investing and growing, while at worst companies can collapse while waiting for substantial sums.
Large firms signed up to the Prompt Payment Code, administered by the Office of the Small Business Commissioner (OSBC), undertake to pay 95% of invoices to small businesses within 30 days. However, this is entirely voluntary. Now, Chancellor of the Exchequer Jeremy Hunt has announced that:
“the Government will lead by example in introducing more stringent payment time requirements for firms bidding for large government contracts. From April 2024, firms bidding for Government contracts over £5 million will have to demonstrate they pay their own invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years.”
What the Chancellor’s Announcement Means
At first sight, this might seem a step back from the requirements in the Prompt Payment Code, lengthening the time from 30 to 55 days. However, it’s important to remember that the Code, which will remain in force, is entirely voluntary. This measure will be compulsory for any large company that hopes to bid for Government contracts.
The measure has broadly been welcomed by the small business community. Tina McKenzie, Policy Chair at the Federation of Small Businesses (FSB), pointed out that.
“Driving out the worst payers from Government contracts and increasing the reputational risk faced by those large corporates who use their small suppliers as a form of free credit is not only the right thing to do to lessen the absolute stress and strain so many business owners face – it is also the way to increase the amount of working capital small businesses can put to good use building up their businesses and investing in the future.”
What More Can Be Done?
While a step in the right direction, these measures currently exclude any requirement for companies that don’t need Government contracts — large supermarket chains, for instance. It’s also worth noting that, while the provision envisions eventually bringing this requirement into line with the Prompt Payment Code at 30 days, this is only described as “in the coming years”.
The Chancellor also announced a Payment and Cashflow Review Report. Measures in this will include changes in the Duty to Report, a review into how to strengthen the Prompt Payment Code and changes to the OSBC. Since some of these measures will require legislation, however, it’s unclear how long it will take before they’re implemented.
If you’ve signed a contract that gives your customer the right to take their time paying, there’s not a great deal you can do about it. For other overdue debts, though, give me a ring, and I’ll help get your cash flowing.
