Payroll data collected through the Xero platform shows small business are having to wait almost eight days longer to get paid in the pandemic.
Anonymised data from its UK software platform show payments are arriving nearly eight days later, pushing the average to 38.5 days overdue.
The data also reveal small businesses saw revenue fall 28% between March and May, leaving them with a major funding gap.
In response, Xero has published a report, Roadmap to Recovery, calling for standard payment terms of 30 days, along with a raft of other ideas.
AAT is strongly in favour of faster payments through the business supply chain. It is a signatory of the Prompt Payment Code (PPC) and has long been campaigning for the following major changes to radically improve the situation.
AAT CEO Mark Farrar comments:
“Over time, companies will be judged on whether they behaved responsibly during the Covid-19 crisis. When it comes to paying the bills, this is not the moment for large organisations to use the balance sheets of SME’s in their supply chain as a source of free finance.
“Small companies, their employees and the communities they operate in don’t need any more financial strain to be added to the challenges Covid-19 has brought. Prompt payments must become the norm.
“AAT is proud to be a signatory of the Prompt Payment Code (PPC), but we would go further. We believe it should be made compulsory for companies with more than 250 staff. We also want to see payment terms to be cut to 30 days and a penalty regime introduced for late payers, enforced by the Small Business Commissioner.”
- Make the Prompt Payment Code (PPC) compulsory for companies with more than 250 staff – currently, the PPC operates on a signatory basis, where those that sign up can use the PPC logo to show that they are committed to good payment practice
- Payment terms should be halved from 60 to 30 days
- A penalty regime for persistent late payers, with powers for proper enforcement extended to the Small Business Commissioner
Small Business Commissioner
Philip King, Interim Small Business Commissioner is also behind calls for quicker payment:
“Making payment promptly through the supply chain during the current climate is vital for the immediate survival and future of small businesses. The impact on small businesses receiving payment faster than they might have expected cannot be overstated but the consequences of late payment can go far beyond financial to affecting well-being, mental health, and more.
“It is imperative that businesses work together as partners and create a culture of good payment practice. Looking at their supply chain to identify the most vulnerable and ensure they are supported will mean those suppliers are still there to support them when the crisis is over. This will reduce damage to the economy and will eliminate the risk of reputational damage.”
Xero’s manifesto for recovery includes a raft of other ideas to help business. They fall into four keys areas:
1. Make the most of the right technology
To help firms reshape their business models, Government must:
- Allow small firms to write off digital technology investments to help them move online or to remote operations.
- Increase R&D tax credits and review how it is defined so it includes digital tools such as e-commerce and cloud technology.
- Appoint a minister responsible for increasing digital adoption and cutting the regulatory burden on small firms.
- Create a public-private partnership with large tech firms and small business policy makers to hasten adoption of digital technology, with a focus on moving online.
- Expand the remit of the Small Business Commissioner to accelerate small-firms adoption of technology to transform their business models.
2. Improve finances and business management
Xero argues that the Government should:
- Set 30 days as standard payment terms for all businesses.
- Legislate on this issue, and ensure that big businesses pay their small business suppliers on time.
- Reset the role of the British Business Bank to focus on providing the long-term growth-focused capital that small businesses need.
- Ensure CBILS and bounce-back loan repayment terms remain flexible so firms can focus on building sustainable long-term businesses rather than paying short-term debt.
- Provide guidance and support to small businesses to help them repay CBILS or bounce-bank loans.
- Simplify the tax regime for small businesses (and all business).
- Increase the VAT threshold to encourage small business growth.
- Offer a six-month NI holiday to small businesses who hire new employees to ease cash flow issues and promote employment.
- Help small businesses move to remote and flexible working by extending tax relief to cover all small business employees and reasonable expenses in the next six months.
3. Acquire the essential skills
The following steps are needed to help small firms get critical skills:
- Give tax relief to train and reskill business owners in critical digital, financial and business management skills.
- Improve awareness of and access to digital, financial, and business training, to help firms rebuild.
- Run a national campaign to encourage all small business owners to work with an accountant that can provide broader business advice.
- Outsource the provision of advice to existing trusted groups to encourage digital take-up.
4. Strengthen local business communities
The Government should:
- Improve gigabit digital access for everyone across the country.
- Put a greater focus on how our regional economies can retain and attract the best graduate talent.
- Ensure that the trend towards remote working benefits towns and cities nationwide.
- Fundamentally reform business rates as part of a wider review for fairer, simpler business taxes.
- Fast-track approvals to allow cafés and pubs to serve food and drinks outside over the summer.
- Allow food and drink stalls in parks during the summer to save pubs.
- Ease planning restrictions to make it easier for high street units to switch between shops, retail and residential.
Xero’s analysis was based on anonymised and aggregated data from its customers in the UK.
The Roadmap to Recovery can be downloaded here.
David Nunn is Content Manager at AAT.