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Is it the beginning of the end for late payment?

The government has been urged by the Federation of Small Businesses (FSB) at the Conservative’s virtual party conference to act now and put a stop to late payment to ensure freelancers, contractors and small businesses survive the Coronavirus pandemic.

Secretary of state for Business, Energy and Industrial Strategy (BEIS), Alok Sharma, and FSB’s policy and advocacy chairman, Martin McTague, discussed the issue at length at the conference on 5th October 2020. 

It became a key topic of conversation after FSB’s recent report, ’Late Again: how the Coronavirus pandemic is impacting payment terms for small firms’, made it clear the UK’s late payment crisis has worsened throughout the pandemic. 

According to FSB’s study, 62% of small businesses experienced an increase in late payments or have had payments frozen completely because of Coronavirus. Meanwhile, 10% of these firms – which includes one person companies – said clients have lengthened payment terms in recent months.  

Tens of thousands of small firms close due to late payment every year

Last year, it was estimated a staggering £23.4billion worth of late payments were owed to self-employed workers and small businesses in the UK.

As explained by FSB, this can have a huge impact on the cash flow and in turn the survival of independent workers and small firms, particularly in the current economic climate.

Because this poor practice leads to the closure of around 50,000 small businesses every year, FSB’s Martin McTague stressed to Alok Sharma the need for a complete change in attitudes and payment practices.

This call for a shift in payment culture comes as the government launches a consultation with the aim to hand the Small Business Minister, Paul Scully, greater powers to tackle the problem

Proposal to investigate suspected bad practices without complaint

Mr Scully recently announced new proposals set out by the government to stop the scourge of late payment. 

These plans, which form part of a new consultation, look to give new powers to the Small Business Commissioner (SBC), Philip King. They include the right to order companies to pay outstanding invoices either as a lump sum or agree to a payment plan, when a complaint has been made and upheld. The firms failing to comply could face further penalties, including fines. 

In addition to this, the SBC may be given the authority to compel companies to share information and cooperate fully during an investigation. The Commissioner could also soon be able to launch investigations into suspected bad payment practices without even having received a complaint.

These initiatives also include a review of wider business practices that extend beyond late payment itself, ranging from supply chain issues or barriers to the adoption of payment technology

We must ‘wipe out this poor payment scourge’

Commenting on the launch of the consultation, Small Business Minister Paul Scully said: “We are committed to tackling this problem, supporting small businesses at this critical time for the British economy by helping them to secure payment on time.

“I am pleased to open this consultation on expanding the Commissioner’s powers and welcome the views of businesses that have been affected by this issue.”

FSB chair, Mike Cherry, added his thoughts: “We know that paying small businesses late is debilitating, and the practice has increased during COVID-19. It deprives small firms of cashflow, holds back growth, undermines productivity and forces many to take out external finance.

“In thousands of cases a year this causes the closure of small businesses. It is therefore more important than ever to wipe out this poor payment scourge.

“The proposed new powers would give the small business commissioner some teeth to investigate bad practice more easily and punish it more severely, and it is very welcome to see these plans being put forward for consultation.”

The consultation is now open and will run until 24 December 2020. Freelancers, contractors and small business owners who have been affected by late payment and would like to share their views, can do so here.

Published on: 12 October 2020 - By: First Freelance

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