Small businesses are said to be the backbone of our communities and our economy. They make up 99% of the 5.2 million businesses in the UK and create more jobs than any other kind of organisation, accounting for 48% of private-sector employment. John Longworth, director general at the British Chambers of Commerce, describes small businesses as “the very fabric of our communities, helping small businesses helps society.”

On 10 February the Prime Minister’s Office published its Report on Small Firms 2010 – 2015 by Lord Young, Enterprise Advisor to the Prime Minister. According to the Report this is a golden age for small firms and there has never been a better time to start a business. In the context of opening up public procurement and paying on time, the Report recognises that “There is a clear leadership role at stake for Government and the wider public sector to pay its suppliers on time. In 2008, central government set an ambition that it would pay at least 80% of invoices within five days. Meanwhile, it was not untypical for prime contractors to push their sub-contractors out to over 90-plus days for payment. In other parts of the public sector, Mystery Shopper, the Government’s complaint service for suppliers about procurement practice, has received cases where 100 days were still common in 2010. A recent National Audit Office report said that small and medium enterprises (SMEs) were paid more quickly by the government than the private sector, but in a third of cases, public sector clients took more than 30 days to settle up. From February 2015 all public bodies will have a legal duty to pay invoices within 30 days and to ensure that 30 day payment terms flow down all public sector supply chains, benefitting sub-contractors. To enhance the process for administering payment in the public sector, the Small Business, Enterprise and Employment Bill proposes provision for Government to accept electronic invoices to reduce bureaucracy and speed up payment.” (page 26)

In the context of accessing finance, Lord Young also recognises that “Tackling late payment across public and private sector is another crucial element of small firms’ ability to access finance for working capital and to use as funds for investment. Around 80% of business to business transactions are undertaken on credit terms of some form, and trade credit constitutes about 37% of total business assets. Most companies in the UK supply goods and services on credit, agreeing to defer payment for a period after delivery rather than demanding immediate payment. This system is an essential element of business practice in the UK. However, BACS’s most recent data (July 2014) showed that £46.1 billion of overdue payment was owed to all businesses, of this £39.4 billion was owed to SMEs. Late payment can have a damaging effect on small companies. This is why the Government is taking forward a package of measures to tackle late and prompt payment. Through the Small Business, Enterprise and Employment Bill, a measure will be introduced to require large firms to publish information on their payment policies and practices. Increased transparency, through a tough and transparent new reporting requirement on all the UK’s largest companies, will take significant steps to addressing the current imbalance in economic power between small and large contracting parties. Overall, measures outlined in the Bill will provide suppliers with better information on their customers’ payment practices and I would expect this to create a competitive pressure on them to improve.” (page 31)

However, at the same time proposals announced by the Ministry of Justice to increase court fees for money claims over £10,000 to 5% of the value of the claim (capped at £10,000 for claims of £200,000 and over) will have a detrimental effect on small businesses who want to be paid enforcing their debts in the courts. These are small businesses who will already be experiencing difficulties with their cash flow in a challenging economic climate. Over 200 individual examples provided by law firms to a coalition opposing the plans* show that the total value of cases brought by small and medium sized companies would halve (49%), suggesting that increased court fees could have a significant impact on access to justice for smaller businesses, as fewer could afford to pay the higher fees. On 26 February the Law Society announced that it was starting legal action to challenge the Government’s decision to increase court fees.

Subject to parliamentary approval the new fees are expected to increase on Monday, 9 March 2015.

In a previous blog post ‘Can pay won’t pay’ we looked at how the service of a statutory demand, rather than issuing court proceedings, can be a quicker and less expensive route to getting paid when the debt is not genuinely disputed.

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*Enhanced court fees – briefing for MPs and Peers, produced by the Law Society

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.