Monday 12th January 2015

According to a report by the National Audit Office, there is little evidence that the government’s commitment to pay 80% of undisputed invoices within 5 working days is having the intended effect of helping the UK’s 5 million small and medium-sized enterprises (SMEs).

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

The report finds that, while UK businesses welcome the government’s commitment to pay invoices more quickly than the 30 days required by law, there is a risk that the policy boosts the working capital of main contractors rather than benefiting other businesses down the supply chain.

While SMEs report that, in general, government pays more quickly than the private sector, they also say that, in about a third of cases, their public sector clients take more than 30 days to pay them. Government departments have reported good performance against the 5-day prompt payment commitment.

The NAO has looked in detail at four departments (the MoD, Home Office, BIS and Cabinet Office) and found their reported performance 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.

When measured from the invoice date, these departments took between 3 and 7 weeks to pay 80% of the value of paper invoices (commonly used by SMEs).

The NAO has generated its own estimates, indicating that government suppliers could benefit from reduced interest costs of up to £88 million a year as a result of government paying invoices in 5 working days rather than 30 calendar days.

Amyas Morse, head of the National Audit Office, "UK businesses told us they welcome the government’s commitment to pay invoices early. However, there has been a disappointing lack of effort by government to check whether the implementation of the policy is actually helping SMEs."