We need action to tackle the late payment problem - Liz Barclay

Scottish businesses are facing a storm of rising costs and dwindling confidence. The last thing it needs is an increase in the number of invoices paid late or outside the payment terms agreed in the contract. But that’s exactly what happened in the last quarter of 2021 and it cannot be assumed the situation will improve in the first three months of this year given the challenging economic situation.

Liz Barclay, Small Business Commissioner.

An FSB survey released at the beginning of the year found that one in 10 Scottish companies said late payments are threatening their viability and one third of Scottish business owners reported that the problem is getting worse. Across the UK, £23.4 billion of invoices were paid later than expected over the last year.

The Office of the Small Business Commissioner (OSBC) has been surveying companies to understand the impact of poor payment practices, which are a major problem for small businesses. When invoices are not paid promptly, or small suppliers are asked to wait 60, 90 or even 120 days after delivery of the work before getting paid, they can face serious challenges meeting operating costs, servicing debt or paying employees and their own suppliers. They also waste valuable time chasing payments.

There is hope on the horizon, however. The Scottish Government is working on a Late Payment framework, which follows on from policy that was previously covered by the EU Late Payment Directive, which required public authorities to pay for procured goods and services within 30 days.

As Holyrood works with Westminster and the devolved administrations, there is a chance to build better legislation that will protect businesses from the problems caused by late payments. The Prompt Payment Code (PPC) which is owned by the Department for Business, Energy and Industrial Strategy and administered by the OSBC, offers a good example of a smart approach to late payments.

Although it is voluntary, signatories of the PPC promise to pay 95% of invoices within 60 days and 95% of invoices from small businesses with fewer than 50 employees must be paid within 30 days. The Code is effective because it encourages firms to examine their payment practices and look at ways of improving processes to reach the targets.

The success of the PPC shows that positive outcomes can be achieved. Yet we can go further.

Companies already publish metrics relating to their ESG performance and consumers expect businesses to have an ethical stance when it comes to protecting people and planet. Embedding details of payment practices in ESG reports would be a valuable measure of a company’s culture and ethics.

There is also a technological solution. We believe the development of Open Banking technology and frameworks can play a major part in addressing the challenge of late payments.

One of the companies doing good work in this space is Ozone API, which provides banks with the application programming interface (API) technology they need to offer Open Banking services. In a financial context, APIs enable sharing of data between accounts.

Huw Davies, Co-founder of Ozone API, said: “Open Banking makes payments fast, easy and seamless. It will play an important role in tackling late payments.”

Both government and industry must focus on solving this challenge because Scotland’s businesses deserve a prompt solution to the problem of late payments.

Liz Barclay, Small Business Commissioner