FSB campaigns against poor payments culture

21st November 2016 | News

The FSB has published a dossier reviewing the way small businesses and the wider economy are harmed by poor payment practice.

The report, titled: 'Time to Act: The economic impact of poor payment practice' states that late payments cost the UK economy £2.5bn a year, causing 50,000 small firms to fold along the way.

Small and medium-sized enterprises (SMEs) report that, on average, 30% of payments are typically late compared with 28% of payments in 2011.

The result of these late payments can be devastating, as the FSB’s report shows. More than a third (37%) of small firms have encountered cash flow problems, 30% have been forced to use an overdraft to compensate for the lack of funds and 20% state profits have been affected by late payments.

The report says that in 2014, if payments had been made on time, as agreed, 50,000 businesses would have avoided being wound-up – boosting the economy by 2.5bn – giving a vital uplift to UK GDP amid concerns of a weakening domestic economy.

Mike Cherry, National Chairman of the FSB, said: “Uniquely, the UK now risks having a business culture where it is acceptable not to pay SMEs on time.

“Based on an imbalance of power between large companies and their small suppliers, this now has a chilling effect right across the economy.

“It’s distressing to hear from our members that in 2016 the average value of each late payment now stands at £6,142.

“Small businesses have to run a tight ship with their cash flow, and as they struggle with increasing business costs on one hand and an uncertain domestic economy on the other.

“They should not also have to struggle with the stress, time and money required to chase overdue payments from corporate giants.”

The FSB’s plan to improve payment practice involves making the company boards of bigger companies explicitly own and be accountable for the impact their chosen payment strategy has on their suppliers.

It also wants the Government to devote some of its impending Corporate Governance drive to ‘supply chain respect’, alongside measures on executive pay and workers.

The appointment of a Small Business Commissioner, pledged in the Queen’s Speech 18 months ago, should also be accelerated to champion the SME community and challenge supply chain bullying.

“This new evidence demonstrates why it’s so important, from both an ethical and an economic point of view, to address this issue head on,” added Cherry.

“Payment culture is set at board level and supplier interest must be represented at the top of the chain. It’s something that CEOs and board members in big businesses must take responsibility for.

“Big businesses should respect the supply chain and stop using smaller businesses as a credit line by delaying payments and applying bullying tactics.”