SME subcontractors working on major contracts with government outsourcing companies are still suffering delayed payments, according to research by law firm EMW.
This is in spite of government pressure on companies that hold major government outsourcing contracts to agree fairer and more prompt payment terms with their suppliers. Many government departments ask their outsourced contractors to pay their subcontractors within 30 days.
But subcontractors are waiting an average of 38 days before receiving payment, whereas the outsourcing companies are themselves paid by the government within an average of five days.
Government restrictions are difficult to enforce, since they depend on SME subcontractor businesses reporting breaches in payment terms. Many small businesses are reluctant to do this for fear of jeopardising their relationship with core customers.
Damon Watt, principal at EMW, says: "These figures show that some of the biggest holders of outsourced public sector contracts are getting their money in five days, and then sitting on it for more than a month. They are effectively using their powerful bargaining position to force their SME subcontractors to provide them with interest-free, short-term loans."
Prime minister David Cameron has recently announced an upcoming consultation, focusing on improving SMEs’ payment terms, acknowledging that "late payment can have devastating effects on our small- and medium-sized businesses”.
Sally Percy is editor of The Treasurer