On 14th September 2011 I initiated an adjournment debate in Westminster Hall to highlight the issue of late payments for small and medium businesses (SMEs). The debate was constructive and welcomed by MPs from across political divides.
You can watch the whole debate at the www.parliamentlive.tv archive which includes the contributions from other MPs – click here: http://www.parliamentlive.tv/Main/Player.aspx?meetingId=8993
If you are, or have been, affected by this issue and want to get involved just follow the links from my website page to Be Fair – Pay on Time on my Facebook page.
ADJOURNMENT DEBATE, 14TH SEPTEMBER 2011
Thank you Mr Chairman. I’m very grateful to have been awarded this debate to discuss the effects of late payments on SMEs.
Just a little bit of background as to how I became involved in this issue and launched the ‘Be Fair – Pay on Time’ campaign, a constituent came to one of my surgeries just after I was elected saying that his haulage firm was on the brink of going under and that one of the key issues for him was the length of time companies, predominantly large businesses, were taking to pay him. In spite of contractual terms of 30 days many were taking well over 90 days to pay. I decided to see how wide scale the problem was locally and received a steady stream of contacts from small businesses with a similar story. However no-one wanted to be named for fear of reprisals including being black-listed from future work. But today it is with mixed feelings I am able to talk about my constituents Ann & Harry Long and their experience. Ann is in the audience today to hear this debate and particularly what action the Government is going to take on this issue.
In July this year the plumbing and heating company she and her husband, Harry, built up from scratch 35 years ago went bust due to the effect of late payments by larger contractors. Ann told me how larger companies have the buying power to stretch out the time it takes them to pay their bills to smaller companies like Harry’s & hers. She said that for most of the 35 years in the business there were many good local companies who like them, held strong, honest values about paying suppliers on time. Ann believes this was because their client base were companies like theirs; local SMEs who care. But she said that when the recession hit, the only companies who seemed to have work were the larger companies, so Ann & Harry had to try and win work with them. Even competing for tenders on Ebay!
But last year as a result of bad debts of over £150,000 from companies not paying promptly or at all – the worse they have known for 35 years – Harry & Ann’s company went into voluntary administration. With no cash flow it was impossible for them to continue.
As I have mentioned before Ann & Harry’s story isn’t unique – I have several other small businesses in my constituency who have gone into administration this summer primarily as a result of late payments. Nationally we know from BACS who run the electronic processing system for financial transactions that £24 bn is owed to SMEs and that over a third of SMEs say that large companies aren’t paying their bills on time. To put that into context high street banks have lent £47.2bn to small businesses.
According to data from the Federation of Small Businesses’ recent survey, over the last 12 months 73% of businesses had been paid late, the average SME being owed £27,000 at any one time, with 56% of members having written off invoices up to £10,000 because of non-payment and 6% in the construction sector having written off over £35,000.
And this position is getting worse. The Forum for Private Business’ Economy Watch Panel last November said that late payment has shown a ‘continued decline’. Small businesses have reported that typically payment is now 50-60 days not 30 with over a third of a company’s turnover being tied up in late payment.
The FSB’s survey indicates that manufacturing is the worst industry sector for making late payments, followed by the construction industry. But although the private sector is the worst culprits for late payments according to 77% of FSB members, there is still a significant section of the public sector which also fails to pay promptly including local authorities and Government departments. New businesses are also more likely to be affected.
The impact of late payment can be disastrous as we have heard. During the recent recession it is estimated that 4,000 businesses failed as a direct result of late payments. As small businesses just don’t have the cash-flow buffers of larger businesses it often means that they in turn pay their suppliers later than they would like and so a downward spiral develops. The BIS Barometer for 2010 showed that 60% of businesses have noticeable cash flow issues and for 25% this was a big problem. The knock-on effects of late payments include the ability of SMEs to access capital from banks and other financial institutions – in the FSB survey 18% of businesses cited poor cash flow as the reason cited for their loan application being unsuccessful. The impact on those businesses refused additional finance included 13% saying that they had had to lay off staff and a worrying 40% who were having on-going financial concerns.
There is growing evidence that late payments to SMEs are hurting our economic recovery. Data from the Office for Nat Stats shows that SMEs make up 98% of the total number of organisations in the UK economy, providing 59.1% of all private sector jobs, 45% of all employment and generating 46% of the UK’s income from the private sector – a massive £1,558 bn. It is inconceivable that if their growth and survival is being threatened that this is not impacting on the country’s economic performance as a whole.
One of the Government’s favorite myths that it likes to spin is that the recession was made in Britain and that the public sector is somehow to blame for our flatlining economy and so should be made to pay with the cuts we are seeing to public spending and vital public services. No-one is fooled by this, Mr Chairman; everyone knows the recession started on Wall Street and was the result of private sector debt led by the Banks affecting every major economy in the world and it belittles the people I represent to try and portray it is as anything else. A little reported fact, Mr Chairman is that in 2009 the City of London debt was 245% GDP compared with public sector debt of 60% GDP. It is time that this Government stopped blaming the last Government and the public sector for the country’s economic woes and targeted action where it is needed – at those who abuse their wealth and power.
I want the Government to take action on those who flout their contractual responsibilities and fail to pay their bills on time. They are not above the law or untouchable. As the FSB has said – this is not just an economic issue ‘it is ethically wrong’.
Mr Chairman today with the Shadow Minister I am calling on the Government to back the following action to address the issue of late payments. Firstly, to bring forward the new late payment EU Directive from March 2013 – this introduces a minimum fixed amount of compensation for late payments and tightens the time periods for payment from March 2013. Secondly, the Government must ensure that all departments are better at meeting the 5-day payment target and have effective monitoring and reporting procedures in place. Thirdly, the Government must ensure that prompt payment is enforced all the way down the supply chain, not just between the contractor and sub-contractor. Finally, we are calling on large businesses to sign up to the prompt payment code.