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Can the Government reverse the UK late payment culture and help SME’s cashflow

Like the rest of us, the government is fed up with the culture of late payment. They recognise that this is preventing UK businesses, especially Small and Medium-sized Enterprises (SMEs), from investing in growth. A recent survey undertaken last year suggested that late payment was a significant factor in 1 in 5 insolvencies.

Central government are big spenders with £40bn a year spent on goods and services with an estimated £4.5bn to SMEs. An additional £4bn is spent indirectly with SMEs who work as subcontractors on government contracts.

Many of us may not be aware, but in 2010 the government announced that its departments would aim to pay 80% of undisputed invoices within 5 working days.  Surprised that this even existed? Well, this is a revision of a previous commitment to pay 90% within 10 working days.

Continuing to set their targets high, the government also announced that the contractors they used should ensure that any subcontractors used by that contractor should be paid within 30 days.

So how’s that all going Westminster?

You may not be surprised to hear that there doesn’t seem to be clear answer. However, it appears that we can be sure 80% are not receiving their money within a week.
When asked, SMEs that work with government have reported that in general, the government pays quicker than the private sector. However, they also say that, in about a third of cases, their public sector clients take more than 30 days to pay them.
The government have a duty to report their performance to the public and many departments have stated that they perform well against the 5-day prompt payment commitment.

The National Audit Office (NAO) have recently taken this to task and looked at 4 government departments.  They found that the reported performance is skewed in their favour by a high volume of low-value electronic transactions with a few large suppliers.

The NAO found that the departments they examined take longer than 5 days to pay most suppliers, including SMEs. When measured from the invoice date, these departments took between 3 and 7 weeks to pay 80% of the value of paper invoices, the most common type of invoice used by SMEs.

So, what would the benefit be of the government sticking to this 5-day prompt payment commitment? According to the NAO they have estimated that suppliers could benefit from reduced interest costs of up to £88 million a year. Practically, better cashflow, less time spent chasing debts and a harmonious working relationship would be a great advantage to SMEs.

It looks like putting this ambitious proposal into action might be a clash between the political will and the administrative won't. Either way, everybody recognising that better payment terms and cash flow is key to a healthy business is a good start in helping this economy recover faster.

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