The Top Government outsourcers took over 6 weeks to pay their suppliers in 2017*, which is 11% longer than just two years earlier, shows new research by Funding Options, the online business finance supermarket.
Funding Options says that many of these suppliers are small and medium sized businesses operating with a small cash cushion. Late-paying clients can easily wipe out a small businesses’ short-term liquidity and even push them into insolvency.
Funding Options says that small businesses who supply Government outsourcers are being forced to wait longer despite those outsourcers benefiting from quicker payments by the Government. Rules introduced in April 2015 require Government departments to pay 80% of their invoices within five days, however outsourcers are failing to pass on this prompt payment to their suppliers.
Slow payment of invoices effectively means that the supplier is forced to give an interest free loan to its larger customer.
Whilst the Government has promised action to ensure that smaller suppliers are properly treated by major Government outsources, that pressure has yet to be translated into speedier payments of invoices.
The problem of unpaid invoices can worsen if that larger client runs into financial difficulties of its own, leaving an ever-bigger pile of unpaid invoices. The collapse of Carillion was a particularly catastrophic example of this, dragging many of its smaller suppliers into insolvency when it finally became clear that Carillion would not be paying its backlog of unpaid invoices.
Funding Options says these late payments are a significant factor in the high number of insolvencies in the construction sector. 2,924 construction businesses went insolvent in the year to September 30 2018, up from 2,645 the previous year.
Conrad Ford, CEO of Funding Options says: “In many ways, these outsourcers are taking advantage of their smaller suppliers.”