Government plans to ban late-payers from getting contracts

Here’s what you need to know

With the Government announcing that it plans to ban late-paying outsourcing groups from getting major Government contracts, new research from commercial law firm EMW shows that top contractor groups paid their suppliers even later last year.

The average time taken to pay suppliers for ten major outsourcing groups, with a combined annual turnover of more than £39bn, increased to 31 days last year, from 29 days in 2016. This is despite being paid within just a few days by central Government.

EMW explains that central Government departments are required to pay 80% of their invoices within five days.

Even with Carillion removed, the average wait for payment for the other major outsourcing groups increased from 26 days to 28 days. Carillion was the worst performer in the group, taking an average of 62 days to pay its suppliers last year, a full week longer than the year before.

EMW says that late payment by major outsourcing groups hits SMEs in the supply chain the hardest, as delays can have huge knock-on effects down the supply chain.

Several previous policies introduced to combat late payment – including allowing businesses to levy interest and costs on late payments, and the creation of a Small Business Commissioner – have not had a significant effect on the problem.

Kam O’Neill, Senior Solicitor at EMW, comments: “The problem of late payment among the outsourcing groups is not limited to Carillion – delays in paying invoices is virtually endemic across the sector.”

“SMEs will be hoping that the Government’s plan to deny contracts to late payers will work – several other flagship policies on payment delays seem to have had little impact.”

“This is enormously important to SMEs, as they bear the brunt of the problem. When the lead contractor pays late, it tends to get progressively worse at each stage of the supply chain, sometimes threatening the solvency of the smaller subcontractors.”