No evidence the government's prompt payment for SMEs is working

The government can't tell whether SME suppliers are benefiting from its commitment to pay 80% of its suppliers on time

The government is unable to tell whether small and medium-sized enterprises (SMEs) are benefiting from its commitment to pay 80% of its suppliers on time.

Determined to give SMEs better access to its contracts, including IT deals, the government wants them to make up 25% of its suppliers – but government departments are not playing ball. 

The government is attempting to reduce its reliance on large IT suppliers for government IT projects, but the National Audit Office (NAO) said it is disappointed with the government’s adherence to its policy to pay suppliers promptly. 

Paying SMEs on time is vital to encourage them to bid for government contracts, however an NAO report said there is "little evidence the government’s commitment to pay 80% of undisputed invoices within five working days is having the intended effect of helping the UK’s five million SMEs.”

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

NAO head Amyas Morse said UK businesses had told the office they welcome the government's commitment to paying invoices early.

"However, there has been a disappointing lack of effort by the government to check whether the implementation of the policy is actually helping SMEs," he said.

The NAO said it is also seriously concerned about the prompt payment performance figures publicly reported by departments. 

“These were overstated by the four departments we looked at," it said. "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.”

The NAO added that reported performance from the Ministry of Defence, Home Office, Department for Business, Innovation & Skills and Cabinet Office is “skewed in their favour" by a high volume of low-value electronic transactions with a few large suppliers. 

"These departments are failing to record the date many paper invoices are first received and, as a result of a lack of accessible guidance and non-compliance by departments, their reported performance is overstated and not comparable,” it said.

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