The Association for Chartered Certified Accountants (ACCA) is calling for action to tackle the effects of poor payment practices on SMEs.

Late payments have a domino effect on supply chains, negatively impacting cashflow, resulting in "severe consequences" for small businesses and negatively impacting the UK economy.

The accounting body is recommending several measures, including increasing the integrity of supply chain reporting, providing more information to SMEs and enhancing the role of the Small Business Commissioner (SBC).

The SBC works with small firms and larger business customers to help resolve disputes over unpaid invoices. Extending the commissioner's powers may allow the office to instigate investigations instead of relying on individual SMEs to make complaints.

Accountants also have a "critical" role to play in promoting good business practices to minimise late payments, the ACCA argued.

Responding to a recent consultation by the Department for Business and Trade, a spokesperson from ACCA said:

"Improving poor payment practices in the UK requires change on a number of fronts, including changes in culture, improving awareness and enabling scrutiny, as well as legislative change.

"We recognise that this will take time and, given the particular challenges reaching small businesses, it is probably too early for the full effect of some measures to be felt."

Over half of SMEs affected by late payments

The issue of late payments for SMEs has been an ongoing concern among industry leaders.

In March 2023, the Federation of Small Businesses (FSB) released a report which identified that 52% of small businesses experience late payments in their day-to-day.

The Time is Money report found that due to poor protection for SMEs, there was a 25% increase in late payments on average throughout 2022. On top of that, 37% of businesses said they had to apply for lines of credit to make up for the missing payments.

According to the FSB, over 50% of the British public believe that more control should be allowed to prevent late payments from being a continued pressure on businesses.

The FSB report proposes the Government should:

• Give audit committees of large firms oversight of payment practices and reporting on progress in their annual report.
• Publicly commit to limiting the maximum payment terms to small suppliers in law by 2027 if the situation does not improve.
• Bar late payers from public procurement contracts.
• Impose 30-day payment terms, which should be a maximum throughout supply chains.

FSB Policy Chair Tina McKenzie said:

"Enough is enough. Late payments in the UK have continued to spiral out of control, while since 2019, ministers lost the momentum and enthusiasm to make a difference. We now need to reinvigorate this agenda and push for growth and productivity - the best way to do this is to sort out the UK's poor payment culture.

"Our report highlights the urgent need for change and the importance of fair payment practices and sets out a clear set of reforms.

"Big businesses shouldn't be using small firms as a bank. It's time for them, too, to step up and take responsibility for poor payment practices."

Talk to us about your business.