Why prompt payment matters – and how the CBI has helped small business

Shining a light on payment performance and strengthening the Prompt Payment Code are welcome steps to help small business.

With the economic recovery now cemented, the small and medium sized firms that continue to be crucial to our future prosperity should have every opportunity to invest in their growth.

But companies unfairly delaying payment and not honouring agreed contract terms are holding these businesses back. BACS figures reveal that in 2015 small and medium sized firms are owed £32.4bn, an average of over £30k per business.

For too long bad practice has been left unchallenged, but the spotlight is now firmly fixed on this pressing issue.

It is key to distinguish between payment terms and late payment. We believe it is important for suppliers and customers to have flexibility when negotiating contract terms given the diversity and complexity in supply chains. Equally, there will be no one size fits all solution to solving late payment, but there are many progressive steps that can be taken.

The CBI has been vocal on how to stem the tide of late payment and bring about meaningful culture change. We are uniquely placed as the voice of both small and large businesses to bring all sides around the table to find solutions that work for everyone.

Firstly, we called for government to shine a light on bad payment practice and the recent reforms to have large companies publish their payment performance are a step in the right direction. Companies who make an asset out of being prompt payers, like Greggs or Skanska, should rightly be championed as models of good practice.

On top of that, small businesses having access to simple information on a company’s payment history will assist in negotiations and help boost standards across industry.

The next step is rooting out unacceptable commercial practice. Paying to be on supplier lists or unilaterally retrospectively changing contracts are practices that hurt small suppliers. While the guiding principle of commercial flexibility must be protected, we should take targeted action to foster strong collaborative supply chains.

Challenging poor practice begins with honesty and greater transparency. Small businesses are exasperated by companies artificially delaying payment terms and trying to game the system. Longer payment terms are a necessity for certain contracts, but negotiations should be candid and any terms agreed must be honoured in full.

The recent Prompt Payment Code announcements on a mandatory maximum payment term and setting up of a Standards board are welcome signs of positive change.

But there’s still to more to be done. As recently highlighted by the National Audit Office, not even the government hits all its targets for prompt payment.

We need a level playing field so that small suppliers can be confident of being paid on time no matter which market they are operating in.

Whatever the colour of the next government the CBI will be pressing for action that drives up collaboration in supply chains, reinforces a culture of prompt and fair payment and stamps out harmful commercial practices.

Our next milestone will be the Great Business Debate discussion on ‘does big business benefit at the expense of small business?’ in June. This will be a great opportunity to delve beyond the headlines and examine how to progress relationships across the business community.