Up to 50,000 small and medium-sized enterprises (SMEs) could be saved by strengthening prompt payment protection and ensure big business is accountable.
The warning came from Merseyside’s chairman for the Federation of Small Businesses as new research shines a light on the UK’s poor payment culture.
It currently costs the UK economy around £2.5 billion each year and forces as many as 50,000 small firms to go under.
To change this, FSB argues that the Government must put supply chain respect at the heart of its current Corporate Governance drive.
FSB’s plan would make boards of larger companies properly accountable for their payment practices, toughen the Prompt Payment Code and task the Small Business Commissioner with tackling supply chain bullying.
The FSB has published a comprehensive report looking at how small firms and the wider economy are affected by poor payment practice.
It has found that existing policy interventions have had no discernible effect on tackling problems surrounding the UK’s poor payment culture over the past 5 years.
Small businesses report that, on average, 30 per cent of payments are typically late – compared with 28 per cent in 2011.
The report also shows that 37 percent have run into cash flow difficulties, 30 per cent have been forced to use an overdraft and 20 per cent say profits have been hit.
At the extreme end, late payments and resulting cash flow difficulties have caused businesses to fail.
In 2014, if payments had been made on time and as promised, 50,000 businesses could have been saved, growing the UK economy by £2.5 billion.
Chris Burgess, chairman of FSB Merseyside, West Cheshire and Wigan, said: “There is a real danger that we are creating a business culture in the UK where it is acceptable not to pay SMEs on time.
“All too often large companies ride roughshod over their small suppliers by not paying them on time or in full, which has a chilling effect right across the economy.
“It’s distressing to hear from our members that, in 2016, the average value of each late payment now stands at £6,142.
“Small businesses have to run a tight ship as far as their cash flow is concerned as they struggle with increasing business costs and an uncertain domestic economy.
“They should not also have to struggle with the stress, time and money required to chase overdue payments from big businesses.”