Six in ten small businesses (62%) have experienced late or frozen payments during the COVID-19 outbreak, according to a survey of 4,000 companies by the Federation of Small Businesses (FSB).
In its report, Late Again: how the coronavirus pandemic is impacting payment terms for small firms, the organisation points out that while six in ten firms have experienced late payment, only ten per cent have actually agreed to changes in payment terms.
FSB National Chairman Mike Cherry said: “Before the COVID-19 outbreak struck, many small firms were already under immense financial pressure because of late payments. Sadly, some unscrupulous corporations are trying to inoculate themselves from the impacts of COVID-19 by withholding payments, or even freezing them, at the expense of small businesses. Our endemic culture of treating small businesses as free credit lines against their will must be brought to an end.”
The FSB makes five recommendations to tackle the issue of late payments:
- Make any big corporation that receives state or Bank of England-backed finance to help it through the current recession sign a supplier charter committing it to payment of small firms within 30 days without exception, while working with the BoE to shore-up supply chain finance and ensure said finance is used to pay small businesses swiftly.
- Give the Small Business Commissioner* additional powers to investigate and fine repeat late payment offenders and make 30 days the standard definition of prompt payment as set out in the Prompt Payment Code.
- Establish a centralised relief pot for small firms within government supply chains that have seen payments frozen and, over the long-term, work to ensure 95 per cent of public sector invoices are paid within 30 days.
- Only hand work to Tier 1 contractors if bidders can demonstrate full compliance with the Prompt Payment Code or, failing that, establish Project Bank Accounts.
- Amend Financial Reporting Council guidance or legislate to force Audit Committees to appoint a dedicated non-executive director with responsibility for reporting on payment practices within annual reports.
*The Small Business Commissioner, Philip King, is appearing in a Working Capital Forum webinar on 14th July, discussing how to support smaller suppliers.