Every day, an average of 38 businesses close their doors because they haven’t been paid on time.

It’s no surprise that small businesses are hit especially hard by late payments. When “cashflow is king,” as one SME founder puts it, anything that keeps them from chasing invoices and able to concentrate on actually building their business is welcomed.

And so the government’s new package of reforms designed to crack down on late payers and smooth the road for SMEs has been warmly welcomed.

The reforms will introduce mandatory 60-day payment terms, reducing to 45 days over five years, and give the government watchdog real power to penalise poor practice. Thomas Robson-Kanu of functional drinks brand The Turmeric Co, who’s spent two years working with peers and ministers on the issue, says the changes will ”sharpen” large companies’ focus.

So how does the grocery sector fare on late payments?

Prioritising payments 

By and large, the supermarkets behave well – and you might even call some of them paragons of payment performance.

“[Supermarkets] are cash-rich businesses, so they pay pretty well,” says Ged Futter, founder of grocery retail consultancy The Retail Mind.

“Most of the retailers have reduced payment times for smaller suppliers, and some even look at the category. If it’s one where faster payment is important, then they prioritise it.”

Take a look at Tesco on the government’s public payment practices checker, for instance, and you’ll see it pays within five days for companies smaller than £250k in turnover. For companies between £250k and £12m, it pays five days sooner than is outlined on its standard terms.

The major retailers mostly abide by the government’s advice of paying no more than 5% of invoices late, too. Aldi is only a slight outlier, paying 7% of its suppliers late, while Morrisons beats the pack with an impressive 0% late rate.

And while Amazon is facing investigation by the GCA for alleged delays, its reported statistics under Amazon UK Services show only 4% of payments are made late – even if those late payments do add up to £75m.

Even Holland & Barrett, which had such trouble only a few years back that it was paying nearly 60% of invoices outside of payment terms, has made significant improvements, nearly halving its late payments to 37% over two years. Of those, 90% are between one and three days late.

A level playing field

The real sticking point for the grocery industry sector comes with suppliers, who are far more likely to be navigating squeezed cashflows. Getting paid on delivery means they have to front an ever-growing bill for input costs. But with automation now standard, and communication instant – are there really any excuses for suppliers like AB InBev UK to average 116 days for payment, even if that particular business does pay 99% of its invoices on time?

And how can it be possible that Baxters Food Group managed to pay 89% of its invoices late? Pilgrim’s Food Masters paid 80% of its invoices late in its latest mandatory half-year report, and Pilgrim’s Pride 82%.

As Ian Carrotte, leader of business credit group ICSM, which helps members identify late payers and avoid bad debts, says: “Anything from the government that changes the culture of late payment is welcome. It is about culture: in some sectors, prompt payment is normal.

“I’ve known small business owners lie awake at night wondering how they will pay their staff, or settle their invoices, and think: ‘This is not worth it.’”

Late payment costs the UK economy £11bn a year. It’s time the big dogs were brought to heel – and the government’s Small Business Plan is the first step to ensuring SMEs get a level playing field.

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