The Government and its agencies are still paying small businesses late despite making commitments over a year ago to pay within 10 days, the FSB-ICM ‘Voice of Small Business’ Annual Survey report shows.

The report found that local Government is likely to pay one in four invoices late, and central Government and Government agencies make one in three payments late. This is despite putting a Prompt Payment Code in place and central Government promising to pay within 10 days at the start of the recession in 2008.

Small businesses have faced a challenging year, with over half (52 per cent) of those surveyed reporting that profits had fallen in 2009. As the recession took hold all businesses felt the pinch, however it is the small business community which bears the brunt of this practice and are leaned on by big businesses which continue to pay late. The survey shows UK central Government (31 per cent), Government agencies (30 per cent), EU institutions (30 per cent), NHS (29 per cent) and local authorities (25 per cent) all put the pressure on too, despite promises to the contrary. Thirty four per cent of payments from the private sector are late according to the survey.

Frustratingly, many businesses have had to resort to using their own long and short-term finance. The survey shows that 41 per cent dipped into personal savings and 43 per cent used their overdrafts last year. Twenty one per cent used a personal credit card. This may be an indication of self-reliance as they encountered a banking sector which refused to lend.

While large firms have sufficient reserves to cope with late payments, a small business relies on payment within the agreed timescale to ensure it has a steady cash-flow.

The FSB is now urging Government to take the lead in tacking this problem by implementing a ‘Social Clause’ in national and local Government contracts. This relies on the Government stepping up its game, paying swiftly and then giving a guarantee that when the Government pays the lead contractor quickly, this is passed down the supply chain to all sub-contractors – with penalties attached for persistent non-compliance.

John Wright, national chairman of the Federation of Small Businesses, said: “It is shocking that after the Government put the Prompt Payment Code in place so many businesses are still being paid late. The public sector needs to take the lead in more than word alone and set an example that paying late isn’t acceptable, as this problem persists in the private sector.

“Small businesses rely on receiving payments within the timescale agreed to maintain cash-flow to ensure the business can run on a day-to-day basis. This is why the FSB is calling for the introduction of a ‘Social Clause’ in all Government contracts.

“However, this clause must have teeth, and any business found to persistently breach the terms should be fined and be warned they may lose contracts in the future. This will give small businesses confidence and go far to change the poor record of behaviour on this issue.

“Late payment is not a new issue, but it has been a particular problem in the past year and it is more important than ever that this worrying practice is brought to an end.”

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