Outsourcers that fail to pay their suppliers on time face being excluded from pitching for government contracts under plans announced by the government.
The plans follow the collapse of the UK’s second-largest contractor, Carillion, in January. It has emerged since that Carillion was paying subcontractors with a 120-day delay.
Data from Dun & Bradstreet shows that at any one time, SMEs are owed approximately £64,000 in late payments, while 11 percent of SMEs are owed between £100,000 and £250,000. Not only that, while 52% of payments are made at the point of supply, 45% occur on credit.
The government will launch a public consultation on excluding suppliers from major government procurement processes if they are unable to demonstrate good payment practice.
Further requirements mean suppliers will have to advertise subcontracting opportunities via the Contracts Finder website, and to provide the government with data showing how businesses in their supply chain are benefiting from supplying to central government.
The Prime Minister has written to members of her Cabinet to nominate a small business champion minister in each department to ensure that SMEs are given “a fair opportunity”.
Other proposals include allowing subcontractors to have greater access to buying authorities to report poor payment performance.
Ed Thorne, UK managing director at Dun & Bradstreet, said: “The government’s announcement is a positive step in addressing what is a tough and long-standing issue for the UK’s small businesses. SMEs in this country are owed an average of £63,881 in late payments at any one time. This can lead to cash flow problems, stifle growth, and in extreme cases lead to business failure. Critically, 15% of SME owners have used their own personal savings to cover the shortfall.”
Federation of Small Businesses national chairman, Mike Cherry, said: “Each year, the UK public sector spends over £200bn on goods and services from third parties. As such a large and prominent customer in the economy, the government has a pivotal role to play in demonstrating what it is to be a good client.
“It is right then that the government today announces, as part of a new package to boost SME procurement, that it will clamp down on poor payment practice throughout public procurement supply chains. Companies who pay late should not be rewarded with public sector contracts. We need a robust public procurement process that holds larger companies to account for their payment practices.”