Late Payments (SMEs)

Justin Tomlinson Excerpts

Wednesday 14th September 2011 Westminster Hall

[Justin Tomlinson (North Swindon) (Con)]

I realised that there might be a bit of a gap, Mr Hood, so I thought I would try to build on some of the excellent speeches that have been made. My remarks will be brief. Before I became a Member of Parliament, I ran, for 11 years, a small business that would have fitted excellently within the category that my hon. Friend the Member for Newton Abbot (Anne Marie Morris) has championed through her work on micro-businesses.

In the spirit of praising the public sector, we should recognise that if a small business can secure a contract with the public sector it has a far better chance of being paid quickly. As several hon. Members have said, cash flow is king, and that makes a difference. However, it is extremely difficult for a small business to secure those public sector contracts, which are nearly always snapped up by the big boys who then subcontract the work on to small businesses. I welcome moves from the Government towards opening up the books and the contracts to smaller businesses, but I should be interested to hear more about how that will work in the real world.

Many businesses that struggle are either start-up businesses or are simply caught unawares. Those who start up businesses believe that, with a bit of hard work and some graft and enthusiasm, things will be great. They do not anticipate other businesses paying late or choosing deliberately not to pay. I therefore have a couple of requests. I understand that the Government want to create 40,000 business mentors for start-up businesses. I urge that the No. 1 priority for those mentors should be to teach start-up businesses about the necessity of invoicing quickly and using contracts and other available methods, because all too often new businesses are caught unawares.

Banks, too, have a role to play when start-up businesses ask for a new business bank account. The banks could provide training—or at least information on how to invoice and chase up late payments. I have often championed financial education in Parliament. I predominantly want to equip the next generation of consumers, but I also want to encourage entrepreneurial skills, and part of that is about basic accounting and ensuring that businesses understand how to invoice.

A tip from my own experience is that one should talk regularly to customers and suppliers, because there are times when even good businesses will struggle because of the knock-on effect of some of their customers not paying. If others are aware that there are likely to be problems, everyone can plan accordingly. There is nothing worse than waiting on a cheque from a supplier or customer when you have to pay the wage bill, but one can at least talk to the bank about it.

The majority of suppliers that I knew which had folded, folded because their customers continued to spend money even though they knew that they were highly unlikely to be able to pay, and in the end it dragged them down. I would be interested to know the Government’s thoughts on that.

[Fiona O'Donnell]

I thank the hon. Gentleman for giving way. Will he indulge me by going back to what he said about the pay roll? The Government say that their Work programme is about not only creating jobs, but making those jobs sustainable. Does he agree that those SMEs that we hope will create jobs for the unemployed in our constituencies are far less likely to create sustainable employment if they have cash-flow problems?

[Justin Tomlinson]

Absolutely. Cash flow is the most crucial element for small businesses. In my case, I did not even have an overdraft. There were times when things were comfortable and times when we were anxiously waiting on customers to pay us. If they did not pay, that had a knock-on effect for suppliers. Access to cash is crucial, and banks need to be sympathetic and not simply say that the computer says no. The banks should take account of the fact that a business with a successful track record has a couple of customers who are taking longer than normal to pay.

There are some customers who continue to spend money that they do not have. If I go into a high-street shop as a customer, put things in my bag and walk out without paying because I cannot afford to do so, I will be done for stealing. All too often, however, I see good businesses that have traded for many generations being brought to an end because some of their customers have taken advantage of their credit terms, knowing that they could not pay. The consequence is that many jobs are being lost, and things need to be tightened. I would welcome the Minister’s comments on that.