Government should use public sector procurement to tackle late payment, says Forum

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The Forum, a not-for-profit business support group, is urging the Government to use the contracts as a tool to fight late payment by refusing contracts to those companies who take an unreasonable amount of time to pay invoices.

Earlier this month the Forum held a roundtable event at Westminster alongside representatives of the Government's department of Business, Innovation and Skills (BIS), the Labour Party, the Institute of Credit Management (ICM), the Association of Certified, Chartered Accountants (ACCA) and Lloyds TSB Business to discuss late payment and the harm it does to SMEs.

New research it carried out in conjunction with the credit reference agency, Graydon UK, suggests more than half of all small businesses have been affected in some way by the practice in the last year alone, with 16% claiming it has nearly put them out of business. The data was presented for the first time at the meeting and was the focus of discussions.

"While we strongly support the Government's plans to improve the public sector procurement process for the benefit of smaller private sector businesses, it would be extremely welcome if it were to ensure only those firms which pay their suppliers promptly are awarded these lucrative state contracts," said the Forum's senior policy advisor Phil McCabe.

"It would send a clear message to big business that late payment is not acceptable and will not be tolerated by government. This is an amazing opportunity for it to lead by example and set the standard for the private sector to follow.

"There really is the potential for massive impact here for very little effort and, after all, if government is paying primary contractors within 10 days, why should those same contractors not settle with their suppliers ASAP?

He added: "Our latest research on late payment shows clearly the impact late payment has  on small business. By being a beacon of best practice and only using firms which respect the supply chain by paying their dues promptly, the Government would be demonstrating huge support for small business. 

"And let's be frank, it has much to do to show it even has even a basic understanding of the needs of small business, despite it long ago pinning any hope of economic recovery on the sector's front door. The fact the economy has stalled and is back into recession this week goes to show the private sector is not delivering this growth, so a small gesture such as this could help kick-start the process."

The Forum is one of 17 leading industry bodies that have signed the Government's ‘Procurement Pledge'. Its aims are to help deliver a more streamlined procurement process that will ensure all but the most complex procurements are completed within 120 working days, thereby making it easier, quicker and less costly for potential providers, especially smaller firms, to access public procurement.

"The Government could use pre-qualification questionnaires (PQQs) – part of the usual tender process – to identify which firms pay within an acceptable time frame and those that don't, which would have no effect on the 120-day tender process," added Mr McCabe.

"It's a win-win situation. Small businesses would not have to worry about managing cash flow issues, allowing them to concentrate better on moving their businesses forward. And the Government will be able to demonstrate it has used its position of power to help small business for once by adopting a common sense approach."

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With the Government this week updating a list of public sector procurement projects worth £70 billion, the Forum of Private Business has said the ensuing tendering process should take into consideration the length of time contractors take to pay their suppliers.