The UK Small Business Commissioner, Paul Uppal is to recommend a traffic light warning system, which will allow small businesses to easily identify large businesses that pay late.

New public data analysed for the first time by Lloyds Bank Commercial Banking in partnership with the Small Business Commissioner, analysed official payment reporting returns based on the annual reports of large businesses. Legislation imposed in April 2017 required all large businesses to publish their payment practices. The research carried out sampled data from 7,010 companies and revealed that:

  • 65% of large businesses have an average bill payment time of more than 30 days
  • More than a fifth (21%) of large businesses report an average bill payment time of 50 days and above.
  • The average time taken to pay a bill is 37 days – with wide variations in different parts of the UK.
  • Companies in London are the most prompt – paying bills in 34 days followed by those in the South West, paying after 35 days.
  • Conversely, companies in Yorkshire and the Humber have the worst record with payments taking 43 days, followed by companies in Northern Ireland and East Midlands with an average payment time of 41 days.
  • Only 14% of companies from the 7,010 analysed, reported payment terms of 19 days or under.

The research is being cited in a proposal from the Small Business Commissioner to publish ‘traffic light’ warnings to help small businesses undertaking contracts with large businesses. The large businesses that are taking longer than 30 days to pay are in effect using their supply chain to finance their business. The Commissioner strongly believes that a simple warning system will alert small businesses to the potential risk of longer payment terms.”

The Small Business Commissioner, Paul Uppal, said “There has been a requirement since April 2017 for large companies and limited liability partnerships (LLPs) to report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices.

“Some businesses have now created a number of reports whilst others still have yet to produce a single report . Our ambition is to help small businesses make more informed choices when deciding which larger businesses they are going to trade with. A traffic light system would be a simple and effective visual way of highlighting which larger businesses are paying promptly and are working in partnership with their supply chain.”

“Our initial findings indicate that almost two thirds of payments are likely to be owed to smaller businesses at any time. This is money that could be used to grow smaller businesses and generate tangible economic activity. Instead it is stuck on the ledgers of large businesses doing nothing.”

Ed Thurman, Managing Director of Global Transaction Banking at Lloyds Bank Commercial Banking, said “We have discovered wide variations in payments depending on where businesses are located. For some businesses two weeks can be critical in the financial well-being of a smaller businesses. Businesses could consider utilising invoice financing products to mitigate these challenges.”

Edward Winterton, UK CEO, Bibby Financial Services said “Small businesses are often captives of the supply chain and whilst a traffic light system may help to make late payment a board room level issue, it doesn’t go far enough. This problem is a threat to livelihoods because it starves businesses of cashflow. We encourage the Commissioner to take further action on this vital issue to make it impossible for larger businesses to ignore. Our own research found that late payments have an unbalanced impact on certain parts of the UK such as the North East where 1 in 10 (13%) are paid over 60 days compared to London where London where almost 1 in 4 (24%) are paid within 10 days (24%).”