Government ‘going to war’ over £37bn late payments to small companies

Michael Fallon, the Business and Enterprise Minister, told The Sunday Telegraph that he was “going to war” on the issue of late payments after hearing complaints from small and medium-sized businesses.

Many have to wait up to 180 days to be paid for services they provide to larger companies and the minister revealed that he had been told of one well-known company that had a payment process approaching 200 days.

Today The Sunday Telegraph and The Daily Telegraph launch a major campaign on the issue of late payments, which have reached record highs of more than £36.5bn.

Before Christmas, Steve Sutherland, a business owner from Huddersfield, revealed that he had pulled out of contracts with Balfour Beatty because of their payment policies.

In response to his story, many business owners contacted The Telegraph to reveal their own problems with payment terms. Since the financial crisis, payment terms have been extended by many companies.

“Large companies are sitting on an awful lot of cash at the moment and it is simply not fair if they don’t pay their suppliers or sub-contractors on time,” Mr Fallon said.

“That is why I have urged the largest companies to sign up to the Prompt Payment Code, which is five years old this month.

“I wrote to all chief executives [in the FTSE 350] back in October, since when 54 more companies have signed up, half of those from the FTSE 350, but there are still many more to go.

“And next month I am going to list those who haven’t signed. They have got another month to sign up.”

Mr Fallon said that recent figures from BACS payment processing reveals that £36.5bn is owed to small firms in late payments: “Cash flow is the lifeblood of small companies. Poor cash flow is how small businesses go under. £35bn owing would average out at around £30,000 per small company if you do the maths.”

In recent months both Sainsbury’s and the mobile phone company O2 have faced criticism for extending their payment terms. Both said they were bringing themselves into line with competitors.

Mr Sutherland revealed that he had risked £5m of turnover to pull out of his relationship with Balfour Beatty.

Although many other businesses have complained about the terms, they often only do so anonymously as they do not want to risk relationships with large customers.

“Late and slow payment is the modern day scourge of small business,” said Phil Orford, the chief executive of the Forum of Private Business.

“Unfortunately, it’s not an uncommon practice, seen in all sectors [and] from what our members tell us the situation is getting worse.

“Take Sainsbury’s, for example. We exposed them in October for increasing standard payment times to certain suppliers from 30 to 75 days.

“That’s a 150pc increase. Then there’s O2, who, in December, wrote to inform their suppliers of an increase to an extraordinary 180 days.

“Asking any business to wait half a year for payment is not just morally questionable, it’s almost certainly damaging to those on the receiving end.”

The Government wants companies to sign up to the Prompt Payment Code, which is run by the Institute of Credit Management on behalf of the Department for Business.

Latest research from the organisation reveals that smaller suppliers wait on average 41 days longer for payment than their contract stipulates.