A public sector initiative to pay invoices within 10 days is not being passed on by main contractors to smaller suppliers, the Forum of Private Business has discovered.
While official figures show most central government departments pay main contractors within 10 days, the Forum understands some sub-contractors and suppliers have been left waiting for payments for months at a time.

Taking up the case of its Glasgow-based member EG Heating and Plumbing, which was recently forced to wait 60 days to be paid by Interserve Defence despite the construction company having been paid by the Ministry of Defence (MoD) within 10 days, the Forum has raised the issue with Peter Luff MP, the minister for Defence Equipment, Support and Technology.

The Forum has suggested that, by ensuring it is passed along the supply chain, prompt payment could be used as an incentive for more small businesses to sub-contract on government-sponsored projects.

'For many smaller sub-contractors this is the real story behind the commitment to prompt public sector payment,' said The Forum's head of policy Matt Goodman. 'What is the point in main contractors being paid within 10 days if firms further along the supply chain have to wait considerably longer for their money?

'Passing on prompt public sector payment throughout the supply chain would not only help more small firms maintain a healthy cash flow, it would encourage more businesses to bid for public contracts.'

Using Freedom of Information (FoI) legislation, the Forum asked the MoD to provide details of payment times to suppliers.

It replied that it is 'fully committed to paying 90% of valid invoices' within 10 days and that, since March 2009, it has 'consistently exceeded' the target.

The MoD also said the latest figures show that 97.5% of invoices submitted by all suppliers were paid 'within 10 days of receipt'.

It added that main contractors' payments to sub contractors should be made 'within a specific period not exceeding 30 days from receipt of a valid claim as defined by the sub-contract requirements'.

'The danger is that this is the tip of the iceberg - the issue is certainly not restricted to the any one sector,' added Goodman. 'We need to build on the work done to create Prompt Payment Code so that timely payment, in full, becomes the norm across the UK.

'The risk is that that more firms go under because they are unable to maintain any kind of cash flow because of late payment from larger companies.'

In an attempt to reveal the true picture of public sector payment to small firms, the FoI request follows similar submissions to all local councils and NHS trusts across the UK. Last week, the Forum submitted an FoI request on payment to all local police forces.

'While we welcome the commitment to reduce public sector payment terms, this doesn't always work in practice,' said EG Heating and Plumbing Ltd's Eleanor Grant, who runs the firm with her husband, Eddie.

'Small companies like ours are normally at the bottom of the supply chain so don't experience the prompt payment enjoyed by main contractors.

'In addition, most contracts are subject to 5% retention, with 2.5% released on practical completion of the works. The defects period on government contracts can be as much as 36 months. And there is the real risk that retention monies could be lost in the event of insolvencies elsewhere in the supply chain.'

'The Forum of Private Business is to be commended for naming and shaming the companies who delay payment to suppliers,' she added. 'The government must listen to the voices of SMEs, which are the lifeblood of the economy and are struggling to stay afloat because of the effects of recession.'

The Forum has campaigned extensively against the practice of late payment. It was instrumental in lobbying for the Late Payment of Commercial Debts (Interest) Act, which was introduced in 1998 and provides firms with a right to charge interest on late payments.

The Forum's work also led to the introduction of the Prompt Payment Code - a list of companies pledging to pay smaller suppliers on time and in full.

However, too few of the UK's bigger businesses have signed up to the code and many small suppliers are afraid to come forward and take them on publicly or in the courts.

The Forum gives business owners a voice to speak out and will treat all communications on late payment sent to latepayment@fpb.org anonymously.