A small chink of light – but will it arrive in time?

March 25th, 2019

This autumn, some small businesses that suffer by being paid late will see a small chink of light fall into their lives when the government introduces its Prompt Payment Initiative.

The aim is to ensure that all government suppliers and subcontractors are paid on time – but before the cynics and naysayers amongst you begin voicing doubts about its efficacy, let me say that I think this idea could well be a lifesaver for some firms. I know that when it comes to the regional economy, I have recently taken a gloomy – and, sadly, accurate – view of prospects. So, what makes me somewhat more hopeful about this plan which has appeared in what I like to call the PCE (Post-Carillion Era)?

To begin with, this is not just “another political initiative”. The man behind it is, admittedly, an MP.  But Paul Uppal is also the UK’s first Small Business Commissioner; and for 20 years he ran his own small business (in the construction industry).

An MP who has actually had a proper job is worth 10 of any promoted political bag-carriers, in my view. And he’s not just an MP but the MP for Wolverhampton South – so he will have had first-hand experience of small businesses who suffered as suppliers to Carillion. Don’t forget that, before the collapse, Carillion had a policy of paying its contractors very late indeed.

Under the initiative, companies that are unable to demonstrate prompt payment to their suppliers could fail to secure government work in the future. Basically, the government is saying that it will only do business with companies who pay their suppliers on time.

This initiative, although long overdue, is to be welcomed. Every year in this country, 50,000 small businesses fail because of cash-flow crises. Right now, and I mean TODAY, according to a study of two million invoices, the average small UK business owner is owed £24,841 in late payments – that’s almost an annual wage for the average employee.

Being barred from lucrative government contracts should not just ensure that the Boardrooms of our larger contractors will be instructing their executive teams to pay suppliers on time. It also has the potential to boost the economy by £2.5 billion every year and create 3.4 million jobs.

So – does this make me less gloomy about prospects for the economy? No, not really. Yes, the Prompt Payment Initiative could save some companies from going to the wall but it is not scheduled to begin until September. And more needs to be done (there is a growing body of opinion, for example, that the maximum payment period should be cut from 60 to 30 days).

It is helpful, but there are other issues that small businesses and their accountants need to be getting urgently on top of as the economic clouds gather – and I will be discussing these in my next blog.

In the meantime, if any of you (or your clients) who are reading this are experiencing cash flow difficulties, get ahead of the inevitable problems that produces by talking to us about your options – discussing things at 11.30pm is much better than at 2 minutes to midnight!