Procurement professionals in large companies and organisations may need to focus more on supply relationship management to ensure that the practice of late payments to small suppliers is stamped out if the government heeds demands from an influential parliamentary committee. The Business Energy and Industrial Strategy Committee yesterday urged the Government to “introduce a statutory requirement for companies to pay within 30 days.” It would apply to large and medium-sized companies, as well as public sector organisations.
MPs have put the contentious recommendation to the government because of evidence that many small and medium-sized enterprises (SMEs) in supply chains have been driven out of business by bad payment practices and that early efforts to eradicate the problem, including a voluntary agreement to settle bills in a timely fashion and the prompt payment code, had failed.
Committee Chair, Rachel Reeves, said that small suppliers of goods and services were trapped in “a stranglehold by larger companies deliberately paying late and ruthlessly taking advantage of suppliers, causing these firms financial instability…Unless the government acts to bring in a tougher regime for poor payment practices, then we choke off the opportunity for SMEs to invest and grow.” Committee members have insisted that their proposed statutory 30-day rule must not be exploited by large firms by offering fast payment in exchange for lowering the size of their bills.
MPs will today release a report on productivity recommending that the Small Business Commissioner should be granted new powers to fine large firms and organisations. Also, the report will propose ring-fenced ‘project bank accounts’ which should be available on construction projects to prevent large contractors improperly withholding their supplier’s due money. Many procurement pros will be concentrating on seasonal pressures now, the ’12 days of procurement’ as it were. In 2019, they may need to prioritise prompt payments alongside their other ongoing duties, including cost reduction, sourcing savings, tail spend management, etc.