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Critical report

Big firms ‘saving themselves’ through late payments

Mike Cherry

Mike Cherry: ‘this behaviour must stop’

Unscrupulous big companies are tying to inoculate themselves from the impact of Covid-19 by withholding or delaying payments to smaller firms, says a new report.

It also accuses Government departments of being equally guilty of the practice and pushing many struggling firms to the brink of collapse. 

Around two thirds of small businesses have suffered late or frozen payments from both the private and public sectors in the wake of the Covid-19 emergency, according to the study of more than 4,000 firms by the Federation of Small Businesses.

Those in the wholesale (71%), legal and accounting (62%) and advertising and marketing sectors (62%) have been hardest hit.

The report, Late Again: how the coronavirus pandemic is impacting payment terms for small firms, shows there is no discernible difference in late payment activity between public and private sector supply chains.    

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This is despite concerted efforts by government at all levels to improve procurement practices – efforts that were accelerated following the collapse of contractor Carillion.

The latest Pay.UK data show that the sum of late payments due across the country rose 80% to £23.4bn at the end of last year. 

FSB national chairman Mike Cherry said: “Before the COVID-19 outbreak struck, many small firms were already under immense financial pressure because of late payments.  

“With cashflow drying up as the lockdown took hold, this situation has worsened. Sadly, some unscrupulous corporations are trying to inoculate themselves from the impacts of COVID-19 by withholding payments, or even freezing them, at the expense of small businesses. 

“Cash is still very much king for small firms, and withholding it has pushed many to the brink at a time when they’re at their most vulnerable.

“Our endemic culture of treating small businesses as free credit lines against their will must be brought to an end.    

“Worryingly, this behaviour isn’t just confined to the private sector: late payment is equally prevalent within government supply chains. 

“If the small firms that make-up 99% of our business community are to play the fundamental role we need them to in ending this recession, this behaviour must stop. The Government promised to act a year ago. Time is running out – we need to see delivery.”

Our endemic culture of treating small businesses as free credit lines against their will must be brought to an end

– Mike Cherry, FSB

The FSB calls on policymakers to make any big corporation in receipt coronavirus finance sign a supplier charter committing it to payment of small firms within 30 days.

The FSB also wants the Small Business Commissioner to be given additional powers to investigate and fine repeat late payment offenders.

It says audit committees should appoint a dedicated non-executive director with responsibility for reporting on payment practices within annual reports.  

The Government originally put forward a raft of late payment reforms in June 2019.   

Speaking in the Lords on behalf of the Government last week, Baroness Bloomfield stated: “I accept that publishing reform proposals is taking longer than originally hoped… as soon as we can we will address this issue at pace.”

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