BIG businesses who pay their suppliers unacceptably late should be banned from getting public contracts, the Scottish Government has been told.
Firms would have to prove they “are a responsible payer” under proposals put forward by the Federation of Small Businesses (FSB).
The FSB is calling on the Scottish Government to demand evidence from potential suppliers that they pay smaller companies on time before they are awarded contracts paid for by the public purse.
More than 2000 Scottish businesses a year could be saved from closure if the country improves its “lamentable” payment culture, according to research by the FSB.
The FSB’s new Fair Pay, Fair Play campaign also calls on the UK Government to force the biggest companies to appoint non-executive directors for payment practice and supplier relationships.
Further, FSB is urging UK ministers to introduce fines for companies who do not publish legally required payment data.
Four in five (84%) UK smaller businesses in supply chains say that they’ve been paid late, according to FSB research, while a third (33%) say at least a quarter of payments they’re owed arrive later than agreed.
UK small businesses say that 60 per cent of late payments are greater than £1,000 in value while the average value of each late payment owed to a Scottish firm is £5718.
FSB survey work also suggests that about one in three (36%) Scottish businesses have run into cash flow difficulties as a result of late payments.
Andrew McRae, FSB’s Scotland policy chair, said: “Our lamentable payment culture isn’t a new phenomenon, but that doesn’t make it any more acceptable.
“As we face the possibility of a sustained period of economic turbulence, we can’t see bigger businesses use their smaller customers as a free source of credit.
“For far too long, government has tolerated big businesses treating their smaller suppliers with disrespect.
“At the FSB, our patience has grown thin and we want to see decision-makers pull every lever available to eradicate this corrosive practise.”
McRae added: “It is clear that late payment makes it more difficult to run a business in Scotland.
“In addition to seeing action from government, we need to see leaders of big businesses in Scotland take responsibility for how their companies treat their supply chains.”
Across the UK, around a quarter of businesses report that late payments are a threat to their survival.
Research from the FSB suggests tackling the problem could add £2.5 billion to the UK economy and keep an extra 50,000 businesses open each year.
Some large businesses are said to use late payments and extended terms to exert control over small businesses in their supply chain.
In October 2018, UK business secretary Greg Clark announced measures to help safeguard small firms from late payments from the government, including appointing non-executive directors with responsibility for supply chain practice within each government department.
Responding at the time, FSB national chairman Mike Cherry said: “This is the only way to transform boardroom culture in the UK, where it has become acceptable to pay small firms late if it helps cashflow, as we saw in the case of Carillion prior to its collapse.”
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