In the U.K., the government is warning larger suppliers to pay subcontractors on time — or risk banks keeping them from doing more public sector projects.
The Financial Times (FT) reported this past week that the Cabinet Office is warning companies — such as Serco, Beatty and Kier, among thousands of others — that new rules will be in place, starting in September, requiring firms that bid for contracts worth more than £5 million ($6.528 million USD) annually to pay 95 percent of invoices within 60 days. The firms must also work toward payment terms of 30 days, said the government.
If these companies do not meet the terms, they will, as the FT reported, be “named and shamed,” and they may eventually be banned from contracts. The rules are part of an effort that seeks to curtail the late payments epidemic — where, as reported, as many as 50,000 smaller firms shutter each year due to late payments. Small businesses (SMBs) account for 86 percent of the workforce in the U.K.
The rules come in the wake of Carillion’s collapse in 2018, where the public sector contractor had owed as much as £2 billion to contractors when it went under.
In another example reported by the FT, the aforementioned Kier, a construction and support services outsourcer, alerted 14,000 subcontractors that they would be charged 1.5 percent of turnover to become preferred providers to the business.
Noble Francis, economics director of the Construction Products Association, told the FT that late payments illuminated “fundamental flaws in contractors’ business models, which rely on taking money from subcontractors. The government likes talking tough on late payment, but does little about [it] in reality. If the government only addresses late payment, then main contractors will need to find other ways of gaming the system.”
Separately, Oliver Dowden, minister for implementation for the Cabinet Office, said, “Prompt payment is critical for all companies helping to deliver public services, particularly small businesses, which are the backbone of our economy. That’s why, from September, if government contractors are late with supplier payments, they could be prevented from winning public contracts until they clean up their act.”
Xero found in its ongoing survey of small businesses that, on average, 46 percent of small businesses were cash-flow negative in 2018. Small businesses were paid almost a week late last year, according to the Xero data. The company also found in its polling that it took an average of 36 days to be paid on a 30-day invoice. The company found that, among the sectors experiencing late payments, standouts included transport and warehousing (10 days late), as well as rental hiring and real estate (six days late).
Scams In St. George
In other news, with late payments being used as a ruse, St. George News reported that scammers have been “spoofing” that city’s utility phone number, warning residents that they will have their power turned off due to late payments, and siphoning off money from these unwitting victims. St. George Energy Services said the fraudsters advise customers that they must send money via wire transfer or risk shutoff.
“Currently, business customers are primarily being contacted,” said the power provider, and that proper notices are sent via email.