Large businesses can be fined for failing to pay Small and Medium Enterprises (SMEs) on time, as part of Government crackdown on delayed payments made to these SMEs by large organisations. Announced on 19th June, Wednesday, the proposed new measures can allow the Small Business Commissioner in future to demand full disclosure of payment terms and have beefed-up powers to tackle late payments.
AvantGarde Training is a plant training company, a service based SME operating for over 12 years now. The company's director and CEO Hiten Dhanak speaks about receiving payments worth about £20,000 over a period of 90 days time frame.
Catch-22 situation: Working with big organisations and 90 days payment deficit
From worrying about salaries for the employees, to paying corporation taxes, there are various expenditures for Hiten to consider. He discusses the difficulties of working with large organisations on their terms and conditions.
“We always are in the dilemma of working with large organisations where we would receive payments after 90 days as opposed to taking up local jobs where we would receive the money straightaway on completion of task.
“It is always a catch-22 situation for us because working with the big clients enhances the company's reputation. But there is a worry about the deficit it could create for the business in the upcoming three months,” he said.
Quite a few start-ups are challenged for their survival as part of this delayed payments' system which has resulted in the closure of more than 50,000 small businesses each year, according to the Federation of Small Businesses (FSB). This has costed £2.5 billion worth loss to the economy. On average, small businesses are owed £80,000 a piece. In 2018, Britain’s small businesses collectively spent £6.7bn just to collect money they were already owed – a huge drain on investment.
“We now, have a company policy in place where if prior payments are not made then we don't issue the training certificates and that is the leverage we have found for ourselves with the company,” said Hiten.
In Northern Ireland, today only 47 percent of invoices are paid on time while 95 percent of British businesses have been paid late at one time or another according to research conducted by accountancy software company FreeAgent. The organisation has reported that late payments continue to remain a “highly disruptive issue” for the UK's small businesses. FSB has been long campaigning against the poor payment practice, supply chain bullying and unreasonable payment terms rallying support against big businesses who squeeze suppliers.
“There will be no more covering-up by those who treat smaller suppliers shabbily”
“Today’s measures will for the first time see the culprits brought to account. When small firms are paid late, it causes financial hardship and stifles growth. Everyone deserves to be paid on time when they have done the work and provided the goods and services requested. No one should have to wait months on end to receive the money they’re owed.
“By forcing audit committees of big businesses to report payment practices in company annual reports, there will be no more covering-up by those who treat smaller suppliers shabbily,” said Mike Cherry, FSB National Chairman.
As part of the proposed measures, the government has also proposed that the Small Business Commissioner will assume responsibility for the voluntary Prompt Payment Code of best practice. Additionally, non-executive directors sitting on the audit committees of large company boards will be required to report on payment practices as opposed to just finance directors previously.
“Small businesses are the backbone of our economy and through our modern industrial strategy we want to ensure the UK is the best place to start and grow a business. These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly – ending the unacceptable culture of late payment,” said Kelly Tolhurst, Small Business Minister.
For further assistance on visit: https://www.fsb.org.uk/
