Government is falling short in its commitment to settle debts with SME suppliers inside 30 days, putting some cash-strapped firms at risk of making redundancies.
A report by the National Audit Office revealed central government spends £40bn a year on goods and services, of which about £4.5bn is spent directly with SMEs.
More ReadingIT supplier? Got a customer who won't pay? Dob them in to the Insolvency ServiceBACS Bank Holiday BALLS UP borks 275,000 paymentsUK.gov opens kimono to SMEs in Tech Services framework cash spaffSME IT contracts? That's the last thing Whitehall wants – reportChannel on track: British tech insolvencies fall to seven-year low
An additional £4bn is spent with SMEs indirectly via larger contractors, said the spending watchdog.
The Cabinet Office has pledged to increase public sector spending with SMEs to 25 per cent of the total budget before the next election.
The NAO noted, however, that most large government suppliers are already "supplied by several tiers of smaller subcontractors."
It said the government has failed to evaluate the effectiveness of the prompt payment commitment in helping small businesses. None of the departments it looked at compile data on whether large suppliers pay SMEs on time.
Amyas Morse, head of the NAO, said today: “There has been a disappointing lack of effort by government to check whether the implementation of the policy is actually helping SMEs.
“We are also seriously concerned about the prompt payment performance figures publicly reported by departments," he added.
The coalition has talked up the importance of SMEs to the economy since coming to power, and constantly warned larger tech suppliers that the days of mega outsourcing deals are over. This was a political statement following numerous costly failed IT projects under Labour.
Ironically, a Small Business, Enterprise and Employment Bill is going through Parliament to curb late payment, including proposals to create a duty for hefty and listed businesses to report on payment practices.
Cash flow is king for any firm, and according to figures published by direct debit company Bacs Payment Schemes, SMEs are owed nearly £40bn as a result of late payments. In contrast larger companies are owed just £6.7bn at any time.
Late payments caused 20 per cent of insolvency last year, according to R3, the association of business recovery professionals. ®