Small businesses hit hard by increase in late payments by Government suppliers

By Daniel Hunter

Late payment by major public sector contractors to small to medium sized enterprises (SMEs) continues to worsen despite prompt payments by Government departments to those big contractors, research by commercial law firm EMW shows.

The average wait before subcontractors and suppliers get paid by the big public sector outsourcers increased from 40.4 days in 2010 to 42.1 days in 2011, despite central Government departments paying 80% of invoices to the big outsourcers within five days.

“These figures show that large outsourcers are using their greater negotiating power to force their smaller suppliers and subcontractors to wait longer and longer for payment," EMW Principal Jodi Tierney said

"This is completely negating the effect of the Government’s prompt payment policy, which was created to help SMEs, who work for the public sector, to survive the recession.”

Many Government departments are exceeding targets for prompt payment, with the Department for Work and Pensions, for example, paying 87.9% of invoices within five days, and 98.4% within ten days. EMW says its research shows those large contractors are sitting on that money, rather than passing it down the supply chain to SMEs.

The 5-Day Prompt Payment policy was introduced by the Government in April 2011. Virtually all Government departments are achieving targets for prompt payment, but the issue of large contractors failing to pass on prompt payment to their SME subcontractors remains.

“The problem of late payment by major public sector contractors is becoming so endemic that several Government departments have set up schemes that allow subcontractors to report serious cases of late payment," Jodi Tierney continued.

A crackdown on late payment by public sector outsourcers was promised by Cabinet Office Minister Francis Maude in May 2011, but EMW says that any impact from that has yet to be felt.

“Despite Government promises of a concentrated effort to improve payment performance by major contractors, these figures show the opposite. The big outsourcers are getting worse putting small companies that they subcontract the work to under enormous financial pressure,” said Jodi Tierney.

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