At the end of August, Pimlico Plumbers’ Charlie Mullins raised some valid points about SMEs not being paid on time. However, whilst he believes government intervention is the solution to late payments, I believe it’s the business community that should be working together to address the issue.
Ultimate Finance conducted research earlier this year around the impact of late payments on the SME sector. We knew it was a challenge facing many of our customers but it turned out to be a bigger issue than we thought. We found that as many as 81 per cent of SMEs were having cashflow issues because of it.
It’s hard to imagine what this truly means for the economy so let’s quantify it. Approximately 99 per cent of all businesses in the UK are SMEs, which equates to 5.4m companies. If 81 per cent of SMEs are struggling with cashflow as a result of late payments, that means this issue affects 4,374,000 small businesses across the country.
Those numbers are, frankly, astonishing. Over 4m companies, employing more than 15m people, are at risk of failing through no fault of their own. It’s clear that finding a long-term, workable solution to late payments needs to be a top priority for the UK business community.
There are many thoughts and theories on what a solution to late payments could be, and steps have already been taken by the government to tackle the issue in the form of late payments reporting. Large companies are now required to publicly share details of the time taken to pay suppliers twice a year.
It’s a well-intentioned piece of legislation, aimed at solving an extremely complex issue. But, is creating “us and them” rules the right path to take? In my opinion, divisive government intervention that “names and shames” won’t work well because this is not just a case of the bigger boys picking on the little guys. Our research shows even within the SME sector itself, it’s the medium-sized companies that are more heavily impacted by late payments.
Every company has supply chain and cashflow challenges, from micro-businesses to large corporates. This is not a small business issue – this is an every business issue. Ultimately, this means the business community are in the best position to create a solution by coming together and taking a holistic approach that truly works for everyone.
I’m not saying that there’s no place for laws to support small business development and, after years of economic uncertainty, the growth of the SME sector is more important than ever and needs to be helped along wherever possible. But, the threat of prosecution isn’t the right approach. Businesses need flexibility and if they can’t have that, the number of transactions in our economy will fall.
As the UK braces itself for a number of Brexit changes, now is the time to tackle late payments for the common good and I believe only the business community itself can effectively do this.
Anthony Persse is director of strategy at Ultimate Finance
Cash flow is one of the hot topics discussed at the FD Surgery Manchester in November. Find out more here.