Three months after the appointment of the UK’s first small business commissioner, SMEs are left feeling sceptical that the new government-backed office will bring any significant improvements to their situation. When he was appointed in December of 2017, Paul Uppal was tasked to tackle the UK’s late payment crisis, but SMEs have seen no movement on the issue since that time.
Of small businesses surveyed by Close Brothers Invoice Finance, a meager 16 per cent of business owners indicated that they expected the small business commissioner to strengthen their hand. Eighty-four per cent of respondents said that they expected no change, or didn’t know what to expect. A year out from Brexit, this is could spell future problems for the UK economy and SMEs in particular.
Late payments are strangling UK SMEs
Late payment times are an epidemic in the UK that seriously affects the entire SME sector. Studies have found that a third of all payments to small businesses are paid late, leading more than 20% of businesses to run into significant cash flow difficulties as a result. Many more payments are greatly delayed, without technically being considered late, because of unfair payment terms forced on small businesses by much larger client businesses. The power disparity in these business relationships makes it possible for the larger partner to dictate terms to their suppliers.
Not only does this slow the UK economy, resulting in approximately £2.5 billion in lost production each year, it impairs the ability of small businesses to establish themselves and compete both at home and abroad. This benefits more established businesses at the cost of innovation and long-term economic growth in the UK. Among other major issues, this was the project that the new Small Business Commissioner was initially tasked with resolving.
The Commissioner doesn’t appear to have real power
While the new commissioner, Paul Uppal, has a great deal of relevant entrepreneurial experience, and appears as a sympathetic figure to small business owners, he doesn’t appear to have the power or influence to make any real changes. This was evident from his first moves upon starting in his new position. Instead of laying out a plan to tackle the systemic issues causing the late payment crisis, he suggested that small business owners attempt to deal with the problem themselves, and to submit a complaint with his office if this failed.
This exposes the office of the small business commissioner as a largely toothless band-aid solution to a massive and systemic problem. Uppal, and the UK government, have taken no steps to regulate payment terms, or to significantly encourage powerful businesses to play fair with their much smaller partners since that time. Small business owners, for their part, hear this message from the government loud and clear.
Growing into the role
Despite the lack of progress the UK government has insisted that Uppal has the skills and tools he needs to bring relief to SMEs, and simply needs the time to work. While this may sound like poor comfort to many small business owners, there is a precedent for this. The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, holds a similar office to that of Uppal in Australia. Using her office primarily as a media tool to engage the public, she has raised awareness of, and brought sweeping changes to, Australia’s own payment times crisis. Given time, we may see Mr. Uppal apply similar tactics. Unfortunately for SMEs, they don’t really have the option to wait much longer for solutions.
SMEs face impediments to growth in the future
With Brexit only a year away, SMEs are in a transition period in which they need to be financially prepared to make significant investments to survive potentially serious economic changes that are still surprisingly unclear. Weakened by harsh payment terms and lack of government support, business owners are left to find their own solutions.
To tackle their cash flow difficulties, many small businesses turn to short term alternative finance solutions like invoice financing, stock loans, supply chain finance, or unsecured short term loans. These allow businesses to deal with late payment issues without sacrificing large amounts of time and energy in the process. While these solutions do allow SMEs to keep their working capital stable, it isn’t a complete solution.
Ultimately, small businesses are still being forced to compensate for the unfair treatment they suffer from their clients. While Uppal’s office takes on complaints regarding late payment, it doesn’t actually change the environment that small businesses have to operate in. Until the new small business commissioner succeeds in creating significant changes that directly impact how SMEs are treated, it’s likely that business owners will remain sceptical.