Government departments are failing to meet their payment obligation to small businesses supplying services to them, according to a damning National Audit Office report published yesterday.

The Government has committed to paying 80% of all undisputed invoices within 5 working days, however the NAO study (which looked at the payment performance of the Ministry of Defence, the Home Office, the Department for Business, Innovation & Skills and the Cabinet Office) found that reported figures were being skewed by a large number of automated electronic payments to a handful of larger suppliers, while around a third of SME suppliers reportedly had to wait longer than 30 days to receive payment.

In fact, when the automated electronic payments are discounted the NAO found that 80% of invoices issues by SMEs took between 3 and 7 weeks to settle.

The NAO’s Amyas Morse commented:

“UK businesses told us they welcome the government’s commitment to pay invoices early. However, there has been a disappointing lack of effort by government to check whether the implementation of the policy is actually helping SMEs.

“We are also seriously concerned about the prompt payment performance figures publicly reported by departments. These were overstated by the four departments we looked at. It remains to be seen whether the changes proposed in the Small Business, Enterprise and Employment Bill and secondary legislation will be enough to bring about improvements, not just in public sector payment practices but the private sector as well.”

Support for small businesses has been one of the cornerstones of the coalition Government’s economic policies, but late payment has never been tackled effectively. The Prompt Payment Code, a voluntary scheme taken up by much of the FTSE 500, was designed to speed up payments to smaller suppliers and businesses further down the supply chain.

In reality, the scheme has had little impact and has had to be reinforced repeatedly. The fact that four of the largest Government departments cannot adhere to the Code – including BIS, which set it up – will dent the Government’s pro-SME credentials in the run up to the 2015 General Election.

You can read the full report here.

Photo by Mark Hillary