Charlie Elphicke MP: The state should pay small businesses on time

Charlie Elphicke is the Member of Parliament for Dover and Deal. Follow Charlie on Twitter.

Late payment to small businesses costs jobs. It stunts economic growth. Late payment by government is particularly unacceptable. Recent figures show that unaccountable quangos are the worst offenders. The Government was right to launch Prompt Payment Day. Yet more could be done: the “Prompt Payment Code” made compulsory for all public organisations, “Project Bank Accounts” rolled out across Government, budget cuts for late payers, while Government contractors that pay small business suppliers late should be fired.

Cash flow is one of the biggest problems which are faced almost exclusively by small businesses. Large multinationals have the cash reserves to take a hit when someone pays them late. For the small business it can be deadly. According to the Federation of Small Business (FSB), more than 70% of small businesses have experienced late payment in the last twelve months. This is unacceptable. Small businesses simply don’t have the money to go after late payments in the courts. Small wonder, then, that two thirds of small businesses have had to write off invoices, with 20 per cent reporting that they have lost more than £5,000 in the process.

It is therefore very welcome that the Department for Business, Innovation and Skills has launched Prompt Payment Day. This is designed to encourage organisations to pay their supplier on time. Businesses are also being encouraged to sign up to the “Prompt Payment Code”, a voluntary code whereby they agree to pay their suppliers on time. Many public sector organisations have signed up.

However, the reality hasn’t quite lived up to the ideal. In the most recent FSB Annual Survey, 24 per cent of respondents indicated that they had experienced late payment from the Ministry of Defence, 32 per cent with Central Government, 37 per cent with the NHS and 32 per cent with EU Institutions. Worst of all, 39 per cent of respondents reported that they had late payments from Government Agencies and Quangos.

The news that Quangos are not paying small businesses on time will come as little surprise to most Conservatives. After all, what pressure can be put on Quangos when most of them are totally unaccountable? Yet, given the enormous financial power Government has as the paymaster, even stronger action could be taken to stop small businesses suffering late payments from public sector organisations. Here are three proposals:

• All public organisations should be required to sign up to the “Prompt Payment Code” – Every public authority should be required to sign up to the “Prompt Payment Code. Any organisations that do not pay within the terms of the contract should be named and shamed, with budget cuts for persistent offenders.

• Roll out more “Project Bank Accounts” - The Highways Agency has piloted “Project Bank Accounts”, an electronic system of paying subcontractors at the same time as prime contractors, and the Cabinet Office has begun moves to extend this in other areas of Government. This should be extended to all parts of Government as soon as possible.

• Restrict Government contracts from suppliers who don’t pay subcontractors on time – The rolling out of “Project Bank Accounts” will make a big difference. Yet more could be done. It’s really welcome that the Coalition Government has included rules in supply contracts that suppliers are expected to pay subcontractors within 30 days, but the sanctions should be tougher. The Government should be tough and say that suppliers to public organisations who don’t pay their subcontractors on time will lose out on future contracts.

Small businesses are the life blood of our economy. They provide the entrepreneurs and the growth. They account for 6 out of 10 business jobs in Britain. To do more to help small business get paid on time is to do more for our economy and economic growth.