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Late Payment Damaging Small Business Finds Government Select Committee

December 10 2018

The government should introduce tougher rules for larger companies that treat smaller suppliers 'disgracefully' with late payment or excessively long payment terms, says the Business, Energy and Industrial Strategy Committee.

The committee published its Small Business and Productivity report, with findings that late payment had a significant impact on businesses ability to invest in growth and productivity and had led to the failure of many small and medium sized enterprises (SMEs). The report recommends a statutory requirement for companies to pay within 30 days is introduced, that all medium and large companies be required to sign up to the Prompt Payment Code, and there should be powers for the Small Business Commissioner to fine companies who pay late.

Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy Committee said:

“Small and medium-sized businesses are vital to the health of our economy, providing jobs and prosperity to communities up and down the country. But many SMEs are placed in a stranglehold by larger companies deliberately paying late and ruthlessly taking advantage of their suppliers, causing these firms financial instability. Unless the Government levels the playing field and acts to bring in a tougher regime for poor payment practices then we choke-off the opportunity for SMEs to invest and grow in the future. “

“UK productivity is falling behind its competitors and itís important the Governmentís Industrial Strategy supports the 'long tail' of less productive SMEs to benefit from new technologies and skills. Small and medium-sized businesses have an important role to play in rebalancing the UK economy and spread prosperity more widely and to all parts of the country. The Government must play its part and, at the very least, ensure that more SMEs are awarded government contracts, which are paid fairly and on time.“

The report also recommended that companies working on public sector contracts be required to pay their own supply chain within 30 days.

The construction industry was also identified as a sector where poor payment practices are rife, and the Committee called for changes to tackle the abuse of retention payments within the construction industry, proposing that independently managed project accounts are introduced, and money withheld only when there is a good reason to do so.

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