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Late Payment in Public Sector

FSB urges Government to improve supply chain payment practices

June 2018

The Federation of Small Businesses (FSB) last week called on the Government to accept a raft of public procurement reforms aimed at promoting best-practice in supply chains. FSB claims that such and unlock the potential of the UK’s 5.7 million small businesses.

Data from the latest FSB report, ‘Chain Reaction: Improving the supply chain experience for smaller firms’, shows that 25% of businesses who are in the supply chains for public infrastructure projects experience late payment more than half the time. More than a third of small suppliers have had their payment terms increased in the last 2 years and 17% of smaller suppliers are paid more than 60 days after submitting an invoice.

Among the recommendations in the report relating to payment practices the FSB is calling on UK Government to:

  • Exclude large suppliers from major central government procurement opportunities if they cannot demonstrate fair and effective payment practices in relation to their subcontractors.
  • Make the use of Project Bank Accounts in public sector construction projects the norm. This will ensure that the money that is due to suppliers is ring fenced, removing the incentive for main contractors to hang onto payments
  • Consult on controls and incentives to encourage departments, agencies and public bodies to pay invoices on time. These public sector organisations should be required to automatically pay interest on any payments made later than agreed terms.
  • Support a more coherent, joined up relationship between the Prompt Payment Code, Small Business Commissioner, and Duty to Report. For example, in due course, data from the Duty to Report will provide an opportunity to scrutinise payment practice and, for those that are signatories, adherence to the Prompt Payment Code.
  • Carry out an annual, anonymous survey of smaller businesses to provide an annual state of play on payment practice, including late payments. This could be based on the similar reduce reliance on direct reporting of poor practice from smaller suppliers, something many are unwilling to do.
  • Remove companies with systemic poor payment practice from the Prompt Payment Code.
  • The governments' Small Business Commissioner should use their ‘name and shame’ powers, focusing on the most serious instances of supply chain bullying

Mike Cherry, FSB National Chairman, said:

"Healthy supply chains are a win-win for businesses and tax payers as they create genuine competition, drive productivity, help close skills gaps and fuel economic growth. Carillion’s collapse demonstrated the urgent need for Government embark on a positive reform agenda to increase value for money for tax payers and to minimise the risk of putting too much power in the hands of a few big firms. By setting a good example, Government will set down a marker for Chairs and CEOs of the UK’s largest companies so that they take accountability for embracing good supply chain practice."

The report follows recent research from My Credit Controllers that showed that signatories of the Prompt Payment Code had measurably poorer payment practices than average firms

Samantha White, CEO of My Credit Controllers said:

"The FSB should be congratulated for shining a light on the way smaller businesses are treated by larger companies in the public sector procurement supply chain. Goverment can and should take a lead in demonstrating best practice."

You can read the full report here.

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