Late payer ‘name and shame’ is vital

EARLIER THIS WEEK, Cabinet Office minister Francis Maude announced that the department plans to “name and shame” large companies that fail to pay small businesses promptly.

In this new strategy, government departments will be responsible for monitoring payment and small companies will be able to anonymously identify persistent late payers who will be named on the Cabinet Office website.

Whether this tactic will work remains to be seen. But the announcement is a welcome recognition of what is a perennial and growing issue from those in power. The coalition has made a lot of noise on finance but it is encouraging to see the government seeking to alleviate something that really holds SMEs back.

There is no question that late payment is an increasing problem. Our recent research among UK accountants found that many SMEs are struggling with financial pressure caused by late payment from large, corporate customers.

The research found that it remains an issue for two thirds (63%) of accountants’ clients, while almost half (46%) have seen their clients’ large customers impose extended payment terms.

It does appear that many SMEs are feeling squeezed by their large, and often vital, corporate customers. Without healthy cashflow, however, SMEs cannot hope to survive for long – even in the best of economic conditions – let alone invest in growth.

SMEs have huge potential to add momentum to the UK economy, but squeezed margins and a lack of cashflow mean that 71% of accountants say their clients have halted growth plans and over half (50%) report that the majority of their medium-sized clients are currently static.

These businesses need to be paid on time to overcome working capital difficulties before they can actively pursue growth. Two thirds of accountants (69%) believe that it will greatly affect the UK’s wider economic recovery if SMEs problems aren’t addressed. This is why the government’s focus on it is so important.

The government and the banks have been singled out as the obvious ‘villains’ in recent years for continuing business difficulties. Nearly two thirds (64%) of accountants believe the government has so far been unsuccessful in helping SMEs operate and almost three quarters (72%) say the same of the banks.

The focus so far has been on access to finance, but issues such as late payment and rising supply costs have put SMEs in a siege mindset. It will be a tough road encouraging SMEs to emerge again, but the process is underway.

This move by the government is one more helping hand. The more initiatives and options there are to tackle issues like payment, red tape, cashflow and access to finance, the more SMEs can be coaxed back into growth. This injection of confidence would be a great thing for them and the economy as a whole.

Peter Ewen is managing director of Venture Finance and chairman of the International Factors Group

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