UK Government Slated for Late Payments to SMEs

UK government departments have been criticised by the National Audit Office (NAO) for failing to honour commitments to pay small and medium-sized enterprises (SMEs) promptly.

In its report, the NAO said there was little evidence to suggest the government’s pledge to pay undisputed invoices early was effectively helping SMEs. While all public sector contractors are legally required to pay invoices within 30 working days, the government pledged in 2010 to pay 80% of undisputed invoices within five days.

However, the NAO reports that in about a third of public sector cases, SMEs – which account for £4.5bn (US$6.7bn) of government spending – reported that government contractors had taken longer than the 30-day legal limit to pay balances due.

Analysing payments by four major government departments – the Ministry of Defence (MoD), Home Office, department for Business, Innovation and Skills (BIS) and the Cabinet Office – the NAO found that electronic invoices, often used by larger suppliers, were skewing data to show a higher level of prompt payments.

While larger businesses benefited from quick electronic invoice payments, the four departments took between three and seven weeks to pay 80% of the total value of the 520,000 paper invoices – commonly used by SMEs – they received in the period 2013-14.

Amyas Morse, comptroller and auditor general of the NAO, said that while businesses as a whole had welcomed the government’s commitment to paying invoices promptly, more was needed to ensure that SMEs were also benefiting from the policy.

“There has been a disappointing lack of effort by government to check whether the implementation of the [prompt payment] policy is actually helping SMEs,” said Morse said. “We are also seriously concerned about the prompt payment performance figures publicly reported by departments. These were overstated by the four departments we looked at.”

Despite the criticism, the UK’s Federation of Small Businesses (FSB) has supported the government, and said that the prompt payment policy was a lesson for those in the private sector who do not always pay bills on time.

Mike Cherry, FSB policy chairman, commented: “Many in the private sector still have a lot to learn about paying bills in good time, and the government has the opportunity to help teach them. This new report demonstrates the need to tighten up prompt payment practices right across the economy.

“Central government has raised its game and is recognising the absolute priority of paying its suppliers on time, making it a requirement to pay within 30 days. It now needs to use this record to improve the wider payment culture, both in the rest of the public sector and in the private sector.”

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