The Government should introduce a tougher regime to tackle larger companies who treat small businesses ‘disgracefully’ by enforcing long payment terms or paying their suppliers late, says the Business, Energy and Industrial Strategy Committee.
The Small businesses and productivity report says that for a small and medium-sized enterprise (SME) to succeed it is crucial they are paid fairly and on time. However, the report finds that bad payment practices have led to the failure of many SMEs and prevented others from growing and improving their productivity. Initiatives to address poor payment practices, including the Government’s Prompt Payment Code, have been ineffective, say MPs.
The report recommends the Government introduce a statutory requirement for companies to pay within 30 days, move as soon as possible to require all medium and large companies to sign the Prompt Payment Code, and equip the Small Business Commissioner with powers to fine those companies who pay late.
Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy Committee said: “Small and medium-sized businesses are vital to the health of our economy, providing jobs and prosperity to communities up and down the country. But many SMEs are placed in a stranglehold by larger companies deliberately paying late and ruthlessly taking advantage of their suppliers, causing these firms financial instability. Unless the Government levels the playing field and acts to bring in a tougher regime for poor payment practices then we choke-off the opportunity for SMEs to invest and grow in the future.
The Committee’s report identifies the construction industry as a sector where poor payment practices are rife, as highlighted by Carillion’s woeful treatment of its suppliers. The Committee calls for the Government to extend the Small Business Commissioner’s remit to cover the construction industry.
The report also recommends changes to tackle the abuse of retention payments within the construction industry, proposing that independently managed project accounts are introduced, and money withheld only when there is a good reason to do so.