The government is being urged to make any big corporation that receives state or Bank of England-backed finance commit to pay small suppliers within 30 days, as figures show firms are waiting on £23.4bn of late payments.
Research by trade body the Federation of Small Businesses (FSB) found out of 4,000 firms, 62 per cent have been subject to late or frozen payments in the wake of the Covid-19 outbreak.
Two thirds of small businesses that supply to other businesses have suffered late or frozen payments, the FSB said, while 63 per cent of firms in public sector supply chains have experienced the same treatment.
Only one in 10 small businesses said they have agreed changes to payment terms with clients, meaning the vast majority of this fresh wave of poor practice has not been formally signed off by creditors or debtors.
To combat this, the FSB is calling for more government support such as giving the Small Business Commissioner additional powers to investigate and fine repeat late payment offenders and make 30 days the standard definition of prompt payment as set out in the Prompt Payment Code.
The FSB is also calling for a centralised relief pot for small firms within government supply chains that have seen payments frozen and, over the long-term, for work to ensure 95 per cent of public sector invoices are paid within 30 days.
“Before the Covid-19 outbreak struck, many small firms were already under immense financial pressure because of late payments,” Mike Cherry, national chair of the FSB, said.
“With cashflow drying up as the lockdown took hold, this situation has worsened.
“Sadly, some unscrupulous corporations are trying to inoculate themselves from the impacts of Covid-19 by withholding payments, or even freezing them, at the expense of small businesses.
“Cash is still very much king for small firms, and withholding it has pushed many to the brink at a time when they’re at their most vulnerable.
“Our endemic culture of treating small businesses as free credit lines against their will must be brought to an end.”