New government promises payment improvement, but road ahead is long
Wednesday, 3 Jun 2015
With the first outright Tory government for almost two decades, the UK voted in favour of an overall majority opposed to what the polls may have predicted. But what will the new government mean for small business, and the late payment crisis that SMEs are facing?
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“This is a big win for the FSB as we have long been pushing for a dedicated voice at the heart of government who could robustly advocate for the UK’s 5.2 million smaller firms,” said Mike Cherry, policy director at the Federation of Small Businesses. “With Anna Soubry’s appointment to cabinet, small businesses can now feel more confident that their concerns will be heard at the highest level.”
As Steve detailed in his pre-election blog, top of the list of those concerns is late payment. Research carried out by Basware in partnership with Mastercard reveals that almost three quarters of businesses (74 per cent) think late payment is simply an inevitability when doing business. The more optimistic will be hoping that Ms Soubry, along with new Business Secretary Sajid Javid, continues the work of the previous government in tackling the late payment crisis, and pushing forward automated payment and e-invoicing solutions.
In his first speech since taking up the post, Javid struck an early blow against late payment culture, promising to tackle the issue head on and create a fairer environment for smaller businesses. “There’s a situation familiar to small business owners up and down the country,” he said. “A letter turns up from a larger customer changing payment terms, or charging them to remain a supplier and in some cases even deducting that charge on the spot against payment owed. This pattern of behaviour is an outrage. It’s bullying – pure and simple.”
The Small Business, Employment & Enterprise (SBEE) Act, signed into law shortly before the dissolution of the coalition, is the first step needed to address the payment problems that SMEs face. It will require large companies to review their payments processes twice a year and publish their payment terms to provide SMEs with clarity and visibility.
While it may not change the ingrained culture of late payment overnight, with proper enforcement it should have the power to incrementally improve the practices of offending big firms, and could also usher a move towards simpler and more efficient payment processes that free up much-needed capital for the whole economy.
The trickle down effects of late payment can have a significant adverse impact on SMEs, with many having to resort to using overdrafts to make ends meet. Bacs studies have also found that late payment is leading to difficulties in paying staff on time, factoring invoices, and difficulties paying regular bills. As the engine that drives the national economy, SMEs deserve an even playing field when doing business with larger corporations. The appointment of Anna Soubry as small business minster is a promising start, and one that the SME community has been largely positive about, but the new government will be judged on what it does over the next five years rather than its first few weeks.