Late payment reforms to help SMEs get paid on time

We have a new young talent on the Spend Matters UK team, our intern Robbie Pyburn -- a graduate in Journalism from Sheffield University. Robbie brings our attention to an interesting article posted by UK Authority.com

New UK public sector procurement reforms to be introduced later this year will aim to crack down on late payments to small businesses. New reforms will include a requirement for payments to be made more promptly “for all the contracts in the supply chain,” according to an article in UK Authority.

Local government minister Kris Hopkins told MPs during a commons debate on late payments: “Reforms will include a legal requirement for all new public sector contracts to include 30-day payment terms for all the contracts in the supply chain, so that smaller businesses are paid on time.” The crackdown comes as part of the transition of new EU directives into UK law. He added that from next year the requirement would be extended: “for all public bodies to publish details of instances of late payments and interest paid as a result of those late payments.”

Just last month we reported on a BBC Radio 4 File on Four documentary that focused on this very subject, and pointed out that the suppliers featured in the programme were scared to name ‘late paying’ buyers. Of course, refusing to name the authorities making late payments isn’t going to change anything, so the latest reforms should be well received by all small businesses that have experienced problems.

The new changes will discourage any public body that intentionally holds back payments to small firms. In some cases late payments arise not from deliberate tardiness but from sheer incompetence or inefficiency on either the buyer or supplier side. In these instances the best solution would be to automate the invoicing process entirely.

This is not to infer that the problem of late payments is endemic in the public sector, and many local authorities have already implemented e-invoicing systems which, according to Kris Hopkins: “are intended to streamline the procurement and payment process, reducing the instances of late payment.” The problem more often occurs where terms have not been communicated to sub-contractors.

Firms with e-invoicing already embedded in their culture will feel little effect from the new requirement, but the reforms will be a wake-up call for those which, while meaning well, may not yet have the systems in place to automate the process and thus help avoid error or eliminate incompetency.

As we reported here, BACS, the payment business owned by banks, estimates that : “UK businesses are owed £46.1 billion currently. Most worryingly, that number has trebled since 2006. And of course, the majority is owed to SMEs simply because small firms still make up most of the economy.”

More and more providers are looking to offer electronic trading, in particular e-invoicing. This is demonstrated by Proactis’ latest acquisition of document scanning and capture provider, Intelligent Capture. Proactis’ new solution, Activate, will utilise Intelligent Capture’s invoice scanning and capture capability to make transactions more efficient and encourage transparency in the payment cycle for vendors. You can read more about this in our article here.

So the reforms are good news for those SMEs that frequently suffer from the late payment culture, but more importantly, the requirements may bring a shift in the uptake of more efficient e-invoicing systems that will hopefully make late payments a thing of the past.

First Voice

  1. Julian Wood:

    This is odd as it was covered by a previous Procurement Policy Note 7/10 that came out in 2010 and I quote

    “As announced in the March 2010 Budget, from 25th March 2010, it will be mandatory for all Government departments, agencies, non-departmental public bodies (NDPBs) (and the bodies over which they have direct control) to include a contract condition requiring their contractors to pay their sub-contractors within 30 days.”

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