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Small Businesses: Invoice Payments

Volume 721: debated on Tuesday 26 October 2010

Question

Asked By

To ask Her Majesty’s Government what steps they are taking to promote prompt payment of invoices to small businesses by public sector organisations and within the private sector.

My Lords, the Government are working in partnership with business and finance bodies to challenge the long-standing culture of late payment. Our strategy encompasses three key aims: equipping suppliers with the support and guidance they need to better manage their customer relationships, invoicing arrangements and cash-flow management; establishing the public sector as a payment exemplar; and identifying and promoting private sector exemplars.

My Lords, given that one in three small firms has to wait 40 days beyond the agreed payment periods to receive an average £38,000 in late payment from Government, public bodies and larger firms, will the noble Baroness study some of the solutions offered by the Federation of Small Businesses? These include having a social clause, which would oblige contractors to pay subcontractors as swiftly as they are themselves paid by Government. She knows very well that small firms worry about obliging larger firms to comply with the late payment Act because they think they will not get future contracts. Secondly, will the Minister enforce the Companies Act 1985 and ensure that Companies House has the wherewithal to name, shame and fine the regular violators of late payment law, which so frustrate our small businesses at a time of financial downturn?

I thank the noble Lord for the question and the recognition that I come from a small-business background. Therefore, I know what it is like to try to get your invoices through. I have to admit that some of the research that we have done shows us that an awful lot of small businesses are so keen to get a contract—I know because I have done it in my time—that they do not read the small print and produce their invoices in exactly the way that a particular company wants to receive them. There is then an easy mechanism for them to say that the invoice is not suitable for payment. The Federation of Small Businesses, which the noble Lord cited, is well known to the ministry for business and meets regularly with us to help us develop and enforce the prompt payment code. More than 1,000 companies have signed up to that, some as big as Tesco and some as small as Mr Andrews, the plumber in my village of St Mawes.

My Lords, does the Minister recognise that the previous Government produced an initiative in the public sector under which invoices were to be paid in 10 days, which was intended to be specifically beneficial to the SME sector? Does she accept that this was typical of so many Labour Party initiatives, in that it was more honoured in the breach than the observance?

I think that we have moved past the time of saying too many bad things about the previous Administration.

Well, I have. My job is to move us on, make sure that we get business for Britain and use mechanisms that really work. We have a system for the public sector whereby the big central government departments pay within five days’ sight of an invoice. By so paying our big suppliers—at the minute, we are paying 90 per cent of them that way—we are encouraging them to pay the small companies supplying them within the 10 or 30 days that they have arranged, so we are trying our best.

My Lords, what about the recommendation of Sir Philip Green? He said that the Government should delay paying business bills.

Did the noble Lord say “delay paying public bills”? I am very sorry. Gosh—there we are. I shall go back and check that.

My Lords, is the Minister aware that many payments to small businesses are made by private individuals and that the transfer of money by direct bank payment is still very bad in this country, which causes delays in businesses receiving the money? Over the years, we have been told repeatedly that banks will be encouraged to transmit the money more rapidly, given that it is taken out of your account immediately but does not reach the other party for three or four days. Will the Minister encourage the banks to speed up this payment process?

Ensuring that banks keep things flowing for business is a long-standing issue. It is very important to ensure that the banks do everything they can in that regard, and for us to ensure that we provide the freedom and flexibility to enable businesses in this country to maintain the business flow which is badly needed right now.

Bearing in mind the earlier Question answered by the noble Lord, Lord Sassoon, does the noble Baroness think that it represents value for money to have Sir Philip Green produce a report for Government of which Government do not seem to be aware?

My Lords, is there not a statutory right to charge interest on late payment of invoices, and after what period does this come into effect?

I should be grateful if the Minister dealt with the second part of the question. Legislation was brought in to ensure that the major contractor gets paid quickly. However, although he is holding on to the money, that contractor does not pay a small business—that was the second part of the question—and small businesses across the land get caught with this every day. I should welcome an answer to that.

I agree. Previous legislation brought in the five-day payment. I must say that when I looked through these questions and saw that we were paying within five days, and then saw that some of the contractors further down the line were contracting to pay within 30 days, I asked myself, “Where is that money going for those 25 days?”.

My Lords, I do not want to make the noble Baroness’s life more difficult and I appreciate what she said about Sir Philip, but I wonder whether an entirely novel inspiration might have flowed from the question. Will the Government consider using Sir Philip Green’s proposals the reverse way round and use the extraordinary leverage that Government plainly have to make sure that they and everyone else pay their bills on time to help small businesses? If that leverage counts, make it count.