SMEs strained by late council payments

SMALL- and medium-sized enterprises (SMEs) across the UK are suffering from credit constraints because of local councils’ long repayment timeframes, claims new research.

The country’s slowest-paying local councils such as Peterborough and Richmond took on average 36 to 38 days to pay their suppliers last year, the Asset Based Finance Association (ABFA) warned on Monday.

While the country’s average is 16.35 days, most authorities still fail to meet the 30-day deadline mandated by a 2013 legal requirement, the association said, which underpins their “glacial” progress in tackling a fundamental threat to small firms’ ability to run their finances smoothly.

“Contractors and suppliers who work for local councils are often small businesses, who could find that late-paid invoices seriously restrict their cashflow, threatening their stability,” said the research, encouraging SMEs to use invoice finance to shield against such risks.

Read more: SMEs owed £26.3bn in unpaid invoices

While the national government is tied to a five-day deadline for repaying at least 80 per cent of invoices, there is no such binding target for local councils.

“Progress in the time taken for local councils to pay their contractors and suppliers has been glacial, falling just one day since 2009,” said ABFA’s chief executive Jeff Longhurst.

“Local authorities should be making sure they look after SME contractors at every step of the process, and should be looking to improve payment times at a faster rate.

“SME subcontractors are often hit twice by late payments – both from the local council, and the main contractor. As the last link in the chain, they can end up waiting for months for payment.”

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Read more: SME access to finance ‘worse outside London’