Each year, 50,000 small and medium-sized (SME) businesses in the U.K. are forced under due to late payments, according to the Federation of Small Businesses (FSB). This is the net result of a culture where many large companies regularly make their suppliers wait far beyond agreed terms, before processing payment.

But while the U.K. government has introduced a number of measures in recent years to deal with late payments, including the Prompt Payment Code — which enforces a maximum 60- day time frame for paying invoices and allows SMEs to report clients who have exceeded payments terms — the problem shows little sign of abating.

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The FSB currently places the annual impact on the U.K. economy at around £2.5 billion. One of the main reasons for this is the power dynamic which often exists between small suppliers and large clients.

“Triggering Prompt Payment Code procedures risks alienating the larger client,” says Robert Blackburn, director of the Small Business Research Centre at Kingston University. “Many small firms don’t want to risk that, especially in difficult economic times. Small firms also don’t have dedicated legal departments, and they don’t want to spend precious days on a time-consuming legal process.”

As a result, instead of forcing small businesses to act as whistleblowers, the FSB hopes that the increasing amounts of new data being generated through the Duty to Report legislation — which makes it compulsory for all businesses with more than 250 employees to officially report their payment practices to the Department for Business, Energy and Industrial Strategy (BEIS) — can be used to publicly ramp up the pressure on large companies to improve.

This legislation first came into force in April 2017, but by November, the FSB expects it to have amassed payment information for approximately 15,000 businesses, across a variety of metrics, ranging from average number of days to pay to longest payment period.

Once this full dataset is available, the FSB has plans to partner with an impartial organization, and publish a payments league table in a similar format to the Times University Guide, highlighting which companies pay well and which do not.

“This would use the public image of these businesses to put pressure on the worst offenders and also create market pressure by providing small businesses with a reference guide,” says FSB policy advisor Lorence Nye. “If it becomes common knowledge that a particular firm is not good at paying on time, then many companies may choose to supply someone else in the same sector who are clearly better. We hope this will create a culture where it’s unacceptable to pay late.”

In addition, the FSB is hoping for a number of legislative changes in this autumn’s budget, which enable the Small Business Commissioner to publicly name and shame businesses if BEIS’ data shows repeated, egregious examples of late payment; and also guarantee smaller firms interest on outstanding payments.

“Small firms can claim interest on late payments through the Prompt Payment Code but currently most of them don’t do this,” Nye says. “We’re hoping that this piece of legislation will be firmed up so that the interest gets added on automatically, rather than being something that the larger company can contest. This is something the government is examining at the moment.”

However, Blackburn urges for caution before too many drastic changes are made, in case of any unforeseen consequences.

“I think naming and shaming companies will make a difference but care should be taken before we bring in any new legislation, in case we inhibit enterprise,” he says. “For large firms, SMEs are attractive because of their agility, flexibility and expertise. If the legislation is too prohibitive, then large-firm/small-firm relations could become more constrained. The main thing is making sure there’s a framework whereby SMEs understand they have access to justice if there are late payment issues.”

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David Cox

David Cox is a freelance writer for leading organisations around the world including the BBC, Guardian and the New York Times.