Following the ICAEW’s release of statistics from the Business Confidence Monitor (BCM) and their call for help from No. 10 to assist businesses with the growing problem, we spoke with Dr Louise Beaumont, an independent chair, adviser, investor and expert on the subject of late payments, and where the issue currently stands.
Q: What are the reasons given by businesses that admit to late payments?
It varies. Sometimes they’ll say the quality wasn’t quite what we expected so they withheld payment, or that they found a typo on the invoice, so they kicked it back to buy themselves a little bit more time. Sometimes they say their payments processes are terrible, so their own processes get in the way of them paying on time. And some say they withhold pay to protect their cash flow and prioritize other payments.
They do so without understanding the vulnerability they are baking into their own business by paying late. If you rely on suppliers, and most companies do, putting them in a position of absolute vulnerability is an act of self-harm.
Currently, there’s no downside to doing it and quite often the company will be commended for conserving cash flow. It’s really quite shocking.
Q: What measures are in place to stop businesses paying late?
In 2015, there were ideas that we would have a Small Business Commissioner, and one of the reasons why we would have a Small Business Commissioner is to tackle this venal issue of late payment, which is just basically accepted as a way of doing business in this country, as evidenced by 92% of businesses admitting to paying late. When the Small Business Commissioner came into life, it was a great idea with zero powers. Now, the Small Business Commissioner is apparently being given some power to tackle late payments, and those powers include fines and binding payment plans.
The question is, how public are they going to be about the number of fines and the value of those fines, and how public they’re going to be about the number of binding payment plans, and whether those payment terms has been adhered to.
Key statistics on late payments:
- One in five businesses surveyed by the BCM said late payments were a problem, an increase on late year, with almost a quarter (24%) reporting the same
- An estimated 50,000 businesses a year close as a result of late payments – Federation of Small Businesses (FSB)
- 92% of businesses admit to paying their suppliers late – Bottomline
- 43% of SMEs surveyed by Small Business Commissioner have faced late payments – Small Business Commissioner white paper
- 82% of SMEs say late payments are a ‘significant issue’, with many in this group saying they decided not to take any action for fear of putting their client relationship at risk – Small Business Commissioner white paper
- SMEs are owned £16bn in late payments – BACS Payment Schemes Limited
- Measures introduced by government in June 2019 criticised by SMEs and AAT
So the only thing that’s going to make a difference is not toothless threats in this economy, it is actual evidence that people have been caught, have they been found wanting, that they’ve been fined meaningful sums and they’ve been forced to agree to a binding payment plan and have then actually met the terms of those payment plans.
The issue of course is that that we’ve got to wait for the data to come through on whether this has really happened; are these people able to act within their powers such as they are, and secondly, what impact does it have on small businesses because, if the process that you have to go through is such that you’ve already gone out of business by the time the company that has caused your demise has been fined, and before the payment plan has been executed, it’s irrelevant to you as a small business, because you’re already dead and it’s acting as a warning flag to those larger businesses to behave better in the future.
So it’s a question about number and value of fines, number and success ratio of the binding payment plans. And has the number of small business corpses declined from an estimated 50,000 per annum now to something which is less than that, within what time frame?
However, there’s no indication of when this data is going to come out.
Q: What more would you like to see done?
I think this [Small Business Comissioner] could work, if they are going to do it [fine and implement payment plans], but the question is, are they resourced to do it as quickly as is going to make a difference, and with the size and vehemence of fines, that is going to make a difference, and will be publicised, so you don’t just learn by being fined.
Businesses learn from other people being fined, which makes you tidy up your payment processes, and your payment attitude. That 92%, with great equilibrium said – yes – we pay people late, half of that was because they wanted to.
So it’s the attitudes that needs to change, its behaviours that need to change, its processes that need to change. We can’t rely on every single late payer learning through their own bitter experience. We need to accelerate that, so they learn from other people’s pain.
Q: What is the government doing to combat the problem?
What we’ve had is warm words from the government, and I think what we now need is action, which isn’t just the warm words, but it’s the teeth that accompany it.
I think part of the reason why the ICAEW has been calling on our new prime minister is because they’re looking to get their agenda on his slate. I think he’s got one item on his slate, and this isn’t it. If his interest was on business prosperity, I question whether he would be pursuing Brexit.
Government faced derision from SMEs earlier in the year
In June 2019, the Government announced a range of measures in an attempt to tackle the UK’s £16bn late payment problem, but the measures were heavily criticised by organisations, including the Association of Accounting Technicians (AAT). Read more here.