There is no evidence that SMBs are benefiting from a government pledge to pay 80 percent of suppliers within five working days, according to a report from the National Audit Office (NAO).

The UK government is aiming to increase the number of tech SMBs it uses to deliver IT projects as it believes this will allow it to save millions of pounds on what have traditionally been expensive, and often unsuccessful, contracts with large IT vendors. 

Government departments are failing to pay more than 80 percent of SMB suppliers within five days ©iStock/Chris Schmidt
Government departments are failing to pay more than 80 percent of SMB suppliers within five days ©iStock/Chris Schmidt

There have been signs that government is taking steps in the right direction. Further, government departments tend to pay SMBs quicker than companies operating in the private sector. However, the report from the NAO, published last week, shows there is still room for improvement. 

The report, Paying government suppliers on time, found that Whitehall policies put in place to ensure that government pays SMB suppliers quickly are proving ineffective.

“[There is] little evidence the government’s commitment to pay 80 percent of undisputed invoices within five working days is having the intended effect of helping the UK’s five million SMBs,” it states.

The five day target window was introduced in 2010 as part of an effort to get more SMBs to take on government projects, while also helping to reduce the number of large contracts government holds with legacy IT vendors. Specifically, it wants 25 percent of its suppliers to be SMBs.

The report suggests government is failing to meet these targets, while also neglecting to record prompt payments when they are made.

Four Whitehall departments took between three and seven weeks to pay 80 percent of invoices in 2013-14, according to the NAO.

Those departments – the Home Office, Cabinet Office, Ministry of Defence and the Department for Business, Innovation and Skills – were also guilty of overemphasising their record on prompt payments, it claimed, by putting small invoices like train tickets on a par with large invoices.

Amyas Morse, head of the NAO, said: “There has been a disappointing lack of effort by government to check whether the implementation of the policy is actually helping SMBs.

“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.

“In general it is either very quick because the day to day process works well, or very slow, because something has gone wrong and figuring it out is time consuming,” he said.

But Harry Metcalfe, managing director at web development agency dxw, which helps the likes of the Home Office and the Department of Business, Innovation and Skills to improve their websites, told Techworld that central government is usually “pretty good” at paying on time.

When government does run late on payments, it's typically a result of "numpty stuff" like "invoices not being signed off because the relevant staff are on holiday", he said. 

"Sometimes there's confusion about where the invoices are supposed to be sent (like more than one email address depending on what sort of project it is), which leads to mistakes," said Metcalfe. "Or there are delays where invoices are required to be submitted on paper (NHS are a big offender there) so any queries or rejections happen by post, which delays everything further."

Metcalfe added: "To be honest, this is an area where government has improved significantly since the mid-2000s. There was a push from the Cabinet Office to honour 30 day payment terms under the last government, and those reforms did pretty well."

Andy McLoughlin, co-founder of Huddle, which supplies several UK government departments with its enterprise collaboration software, said: "In our experience, while the UK government does tend to pay five to eight days after our net 30, they are often faster than many private sector clients and ultimately won't default on payment."

Naureen Khan, associate director of central government and education at industry body techUK, told Techworld: “The impact of late payment on a small business can be devastating. But there is also a cost to government.

"Revelations like these send the wrong signal to suppliers, deterring small businesses from competing for public sector contracts. This means that government departments do not have access to the full range of innovation available from smaller suppliers, and has a negative impact on value for taxpayers.

“The government needs to get its house in order, and resolve these payment issues, to prevent undoing all the good work it has been doing to encourage SMEs to bid for government contracts." 

Central government spends £40 billion a year on goods and services, of which about £4.5 billion is spent directly on purchases from SMEs.