Douglas Chapman MP

Poor payment practices can have devastating consequences for small businesses.

Research by the Federation of Small Businesses has revealed that more than half of SMEs across the UK suffer crippling cash flow issues due to late payments of invoices, with figures showing that in that last 18 months to two years, almost half a million businesses have gone bust due to this issue. Earlier this year, the FSB warned that one in 10 Scottish firms had reported that late payment was threatening the viability of their business.

With business confidence at an all-time low due to slow recovery from the pandemic, the bludgeoning Brexit effect, and now a cost of living and energy crisis, this is no minor matter, rocked further by instability across the UK from a Westminster Government in flux, our third PM in as many months and the recent loss of the Small Business Minister position.

Restructuring trade body R3 recently reported that in Scotland alone, 1.7 million invoices were overdue in the third quarter of this year. These poor payment practices can lead to shattering consequences for SMEs in terms of their operating costs, how they service their debt and pay their staff and suppliers, not to mention their own mental health and the threat of shutting up shop for good.

Last week at Westminster I was pleased to host a round table discussion on this matter with ACCA, the Association of Chartered Certified Accountants, organised by Susan Love, the strategic lead for ACCA in Scotland. Guests included accountancy representatives from across the UK, small business leaders and the Small Business Commissioner, Liz Barclay.

Our discussion covered vital issues on this cash crisis for smaller firms, sharing feedback from accountants and the firms they support to find solutions to improve this broken payment culture. As a result, Liz Barclay and Elaine Cromwell, partner at Thomson Cooper in Dunfermline in my constituency, plan to discuss further Elaine’s suggestion of an accessible toolbox for SMEs including information on cashflow management and negotiating terms with larger customers.

At present, the UK Government’s voluntary Prompt Payment Code recommends paying SMEs within 30 days. Liz Barclay certainly thinks that this code does not go far enough and that the whole payment culture needs to change. She points out that often small firms sign up to payment terms with larger firms and either don’t feel confident enough to negotiate good terms or don’t realise before it is too late that the big guys have stated 60, 90 or even 120 days payment for services or goods.

Beyond the endless rhetoric from the UK Government on growth and prosperity, the cold, hard reality means we can’t have a thriving economy without a practical, solution-focused approach on tackling poor payment practices. Paying within 30 days would have a hugely positive effect on our SMEs, would nourish an ethical and more transparent business environment and consequently allow more small firms to survive and grow. Without this fundamental shift, the forecast remains neither strong or stable.

Douglas Chap­man is SNP MP for Dun­fermline and West Fife and the party’s small busi­ness, en­ter­prise and in­no­va­tion spokesper­son. This article first appeared in The Herald.