Prompt Payment Code

Mark Tami Excerpts

Thursday 8th November 2012 Commons Chamber

[Alex Cunningham (Stockton North) (Lab)]

I, too, congratulate the hon. Member for South Basildon and East Thurrock (Stephen Metcalfe), and other colleagues, on securing this debate.

Listening to today’s debate, one cannot fail to be left with the impression that small and medium-sized businesses across the UK are suffering as a result of late payments. In the current economic crisis, that is totally unacceptable. Late payment can cause cash-flow problems, as smaller firms struggle to absorb the impact of late bills, and has the practical effect of making small firms bankroll larger ones. We are reliant on the SME sector thriving, but the current state of affairs threatens to hold back companies that could otherwise be creating jobs and helping our economy to recover.

[Mark Tami (Alyn and Deeside) (Lab)]

Does my hon. Friend agree that a particular problem for smaller companies is that the Inland Revenue does not allow them time to pay, even though they can demonstrate that they are owed sizable sums of money, before moving against them? Some companies are forced out of business by such action.

[Alex Cunningham]

That is very much the case: there are plenty of examples in the newspapers of companies going to the wall because they owe the taxman money. Even though somebody else might owe them 10 times as much, they still have to face up to that problem.

From my experience of owning a business before entering this place, I know how difficult it can be for small businesses when clients fail to pay up in reasonable time. Large organisations would have 30, 60 or even 90-day payment periods, and although most kept to their terms, that did not help my cash flow. The nature of my business required me to buy and pay for published materials, printed for my clients, who could then take months to pay me. Sometimes I could be owed as much as £5,000 by one client, or about 3% of my annual turnover. I seemed to spend countless hours chasing cash and monitoring my cash flow, when I should have been working for clients and trying to expand my business. Local businesses on Teesside tell me that they face the same challenges. They just cannot get people to pay up. It never ceases to amaze me that it is the bigger companies that take much longer to pay, with many doing so only after delaying tactics and countless promises that the elusive cheque is in the post.

The statistics are troubling: according to the latest BACS figures, more than 1 million SMEs are currently affected by late payment, and the average amount owed to each SME has reached £36,000. Debts to my former business never reached that level, but as much as £15,000 might be owed at any one time, much of it for up to two months. According to BACS, Britain’s small businesses spend 110 million hours a year chasing late payments, at a cost of £683 million. It is amazing to think of the other ways in which that money could be invested. The average small firm spends more than 13 working days a year chasing late payments. Research by the Federation of Small Businesses last year found that 73% of small firms reported being paid late. According to figures from the Department for Business, Innovation and Skills, 4,000 small businesses failed in 2008 as a direct result of late payment. The statistic that puts the issue into the sharpest possible light is that the outstanding funds now owed to small and medium-sized enterprises total £36.4 billion—or much more, as the hon. Member for South Basildon and East Thurrock said. I am sure that Members on both sides of the House appreciate that that is not a good state of affairs. A great deal more needs to be done.

I congratulate my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) on writing to the FTSE 100 companies about the prompt payment code. I can think of no defensible reason why companies of such size and magnitude should not sign up—60 of them either ignored her or refused to sign up—particularly given the leadership role they are supposed to play in our business community.