Basware Report on Prompt Payments – Still An Issue for UK SMEs

Last week Payments and eProcurement firm Basware published the results of a UK survey around small business and prompt payment. The survey of over 2,000 small businesses (SMEs) with less than 250 staff found that more than half support a change in the law around late payments. 60% want a statutory maximum payment terms of 45 days, and only 10% don’t want new laws.

Now that raises some immediate questions around supply chain finance, relevant of course because Basware themselves are one of a number of firms that are offering various options around SCF on top of their market-leading e-invoicing services. So would it be OK if a buyer offers their suppliers (or some of them at least) the option of getting paid early – in return for a small fee? It feels to us that the answer to that for many would be “yes, that’s OK, as long as the terms are not too onerous”.

But back to the survey, and it is a worrying picture. As Basware says, “One in four of the respondents have had their financial viability put at risk due to late payment, or payment towards the end of a term agreement”.

That would mean no less than two thirds of a million SMEs have come close to bankruptcy because of payment issues, a pretty shocking number. The survey suggests that around half of those had to use the owners personal finance to stay afloat. Many had to fire staff or delay recruitment. Only a quarter of the survey respondents had no issues with late payment of bills last year.

Half of the businesses who have been affected pointed the finger at bigger customers' firms – although that is not as high a percentage as we might have expected. But of course small firms aren’t perfect themselves, and there is a vicious circle or a “vicious supply chain” too at times. If a small firm isn’t paid on time, it may have to delay payments to its own suppliers, who may well be other SMEs.

The public sector is also not immune from these problems – we have heard worrying stories recently about NHS Trusts delaying payments around year-end, but it does not appear that the survey particularly looked at the public sector as a group of buyers.

Louis Fernandes, Country Manager of Basware in the UK, said: “SMEs are the backbone of the UK economy and critical to our competitiveness through Brexit. The UK needs to take steps to help SMEs improve productivity and realise cost savings where they can. Technology will be important and we are seeing more and more firms come to us looking for help with payments automation and different financing models, but it’s clear that late payments cause massive issues for firms. SMEs need to see the government do more to help them get paid on time.”

Yet it was recently reported in The Times that the government’s “small business commissioner”, Paul Uppal, “had received a mere 42 complaints relating to 14 companies. He has “commenced consideration of two cases, with four cases pending, awaiting further information from the complainant”, officials said. They said that Mr Uppal had “entered into dialogue” with companies on 14 occasions.

Now it may be early days for that role, but it is indicative of a general reluctance for small firms to stick their heads above the parapet, complain, and risk getting them shot off by their bigger customers. So any government action must have real “teeth” here or this will continue to be a problem.

The Prompt Payment Code may have had some effect, but there is evidence it has been abused by firms signing up and then still paying late. That has led Jeremy Corbyn to promise more drastic action if the Labour Party win power; another reason perhaps for all businesses to get their houses in order as quickly as possible. And there’s more on the survey and other information from Basware here.

 

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