Traffic-light system to identify businesses with poor payment practices

George Hay Chartered Accountants

Late payment and other poor payment practices can present a very real problem for small-to-medium sized enterprises (SMEs); hindering their growth in many respects and making it increasingly difficult to compete with larger suppliers and businesses in the marketplace.

Roughly 5.5 million small businesses reside in the UK and research suggests that around half have experienced late payment from larger companies at one time or another.

In a bid to crack down on the bad habits of big businesses, the Government introduced new rules in 2017 which required Limited Liability Partnerships (LLPs), as well as medium and large sized companies, to publish reports concerning their payment practices.

Data published includes:

  • the average number of days taken to make payments;
  • the percentage of payments made within 30 days, 31-60 days, or on or after 61 days;
  • the percentage of payments due which were not paid within the payment period.

Now, the UK Small Business Commissioner, Paul Uppal, has called for a traffic-light warning system to be implemented, which will allow small businesses to easily identify large businesses that pay late.

In his proposal, Mr. Uppal cites analysis of official payment reporting returns based on the annual reports of large businesses, undertaken in partnership with Lloyds Bank Commercial Banking.

Of a sample of 7,010 large companies, over a fifth reported an average bill payment time of 50 days or more.

The Commissioner believes that a simple warning system will alert small businesses to the potential risks associated with longer payment terms.

He said: “Our ambition is to help small businesses make more informed choices when deciding which larger businesses they are going to trade with. A traffic light system would be a simple and effective visual way of highlighting which larger businesses are paying promptly and are working in partnership with their supply chain.”

Martin Williams, Partner at George Hay, said: “Put simply, reliable and consistent cash-flow is vital to the success of any business. However, small businesses differ slightly in that even minor fluctuations often have a far greater impact on their operation, than they perhaps would on a large, multi-million-pound organisation.”

“We support any measures that help businesses to make more informed decisions, especially in an economic environment where there is already so much uncertainty threatening to cloud judgement.”

“That said, it’s difficult to believe that the traffic-light system is really going to get to the root of the problem, which is the poor payment practices that exist.”

“As well as helping small businesses to recognise the warning signs and educating them to be more selective about who they do business with, we also need to promote better payment practices amongst big businesses and help them to make changes for the better.”

Here at George Hay we are experienced in advising businesses of all sizes, across a range of industry sectors. We can help you to drive your business forward by working with you to formulate a sound strategy and assisting you with making informed business decisions.

To find out more about the services we offer to businesses, contact us, or explore our website further.