Late payment woes deepen for small firms in lockdown

● Most businesses suffer Covid-19 delays ● Both public and private sectors at fault

small firms have been hit by late payment issues since the pandemic began with major customers in both the public and private sectors coming under fire for poor practices, according to new research published today .

The Federation of Small Businesses (FSB) is urging financial penalties to be imposed on repeat offenders and for prompt payment to now be made a precondition of state bailouts.

The call comes as an FSB survey of more than 4,000 firms shows the majority of small businesses (62 per cent) have been subject to late or frozen payments in the wake of the Covid-19 outbreak.

However, only one in ten small businesses have agreed changes to payment terms with clients.

The FSB said the survey also showed that despite concerted efforts by government at all levels to improve procurement ment practices, there is no discernible difference in late payment activity between public and private sector supply chains.

Latest data from PAY.UK show that the total of late payments due across the country rose 80 per cent to £23.4 billion at the end of last year.

The UK government originally put forward a raft of late payment reforms in June 2019 but detailed proposals are still awaited. The FSB has now called for measures including forcing any big corporation that receives state or Bank of England-backed finance to help it through the current recession to sign a charter committing to paying small firms within 30 days without exception.

It also wants the Small Business Commissioner to get additional powers to investigate and fine repeat late payment offenders and make 30 days the standard definition of prompt payment as set out in the Prompt Payment Code.

In addition, it wants to see a centralised relief pot for small firms within governmost supply chains that have seen payments frozen and, over the long-term, work to ensure 95 per cent of public sector invoices are paid within 30 days.

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. This behaviour must stop.”