Late payment practices by large firms have led to the failure of SMEs and prevented others from growing and improving their productivity, according to a select committee report.
The business select committee has called on the government to enforce tougher measures on large firms that it claimed treated small businesses “disgracefully” by enforcing long payment terms or paying their suppliers late.
Initiatives to address poor payment practices, including the government’s Prompt Payment Code, had been ineffective, the MPs said.
The report recommended that the government introduced a statutory requirement for companies to pay within 30 days.
It also suggested all medium and large companies be forced to sign the Prompt Payment Code, and the small business commissioner to be given powers to fine those companies who pay late.
Several companies looked at by the committee took on average more than 60 days to pay an invoice.
SMEs also faced other unfavourable terms – described as “supply chain bullying” by the Federation of Small Businesses – such as being required to give discounts for prompt payment or being charged fees to remain on a suppliers list, the report noted.
Select committee chair Rachel Reeves said: “Many SMEs are placed in a stranglehold by larger companies deliberately paying late and ruthlessly taking advantage of their suppliers, causing these firms financial instability.
“Unless the government levels the playing field and acts to bring in a tougher regime for poor payment practices, then we choke off the opportunity for SMEs to invest and grow in the future.”
CBI deputy director-general Josh Hardie said any new measures should be business-led.
“Firms have already done a significant amount to improve,” he said. “Since 2014, late payment debt has halved, and the UK has comparatively short payment terms set against other European countries.
“But with too many small and medium-sized firms still disproportionately affected by late payment, it’s right that policy-makers are looking to drive down unfair and dishonest practices where they still exist.
“What gets measured gets done, but we know that a one-size-fits-all approach in this space rarely works.
“Any new measures must be business-led and reflect the dynamics of different industries. For many firms regardless of size, reliability of payment is as important as speed.”