Government seeks to protect SMEs over payment terms

27th February 2015

UK government ministers are trying to protect small firms from long payment delays by implementing set payment terms for public sector contracts.

Cabinet Office minister, Francis Maude confirmed that legislation would be introduced to mandate 30-day payment terms throughout the supply chain for public sector work.

Maude hopes by implementing EU rules on public procurement it would avoid a situation where, even if Government met its obligation to pay suppliers within a 30-day window, large companies delay in paying their smaller suppliers.

“The Government was giving a huge cash flow boost, a working capital boost to larger companies,” said Maude.

The move comes weeks after the Government was urged to improve payments to SMEs by the National Audit Office (NAO) who found that a third of SMEs were not paid within 30 days for public sector work.

Graeme Fisher, head of policy at the Federation of Small Business (FSB), said: “There is not a single silver bullet to solve this problem. Ultimately for the UK to have a better payment culture, the issue has to be addressed by the private sector.

“We must see action to reverse the trend, with boardrooms taking responsibility for this issue.”

Nevertheless, the Government confirmed it has surpassed its target – set in the coalition agreement - of increasing the percentage of public sector contracts awards to SMEs to 25 per cent.

Mr Maude confirmed that in the financial year 2013-14, 26.1 per cent of central government spending went to small firms, representing £11.4bn in value.

However, just 10.3 per cent was given in the form of direct contracts with the remainder indirect contracts.

Image: BISgovuk

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