The government’s most frequently-used outsourcers took more than six weeks on average to pay their suppliers in 2017, 11 per cent longer than two years earlier, data published today reveals.
Many of these suppliers are small businesses operating with a limited cash cushion, meaning late-paying clients could easily wipe out their short term liquidity or even push them into insolvency, according to the research.
Small businesses who supply government outsourcers are forced to wait longer despite their clients largely benefiting from prompt payment rules imposed on government departments by Whitehall.
Rules introduced in April 2015 require government departments to pay 80 per cent of their invoices within five days, but outsourcers are failing to do the same, according to business finance provider Funding Options.
Conrad Ford, chief executive of Funding Options said: “In many ways, these outsourcers are taking advantage of their smaller suppliers.”
Last month, City A.M. learned suppliers of debt-stricken government outsourcing giant Interserve were worried they would not receive payments from the company.
Smaller subcontractors carrying out work on behalf of the company are “extremely worried they will not be paid”, said Rudi Klein, chief executive of trade body Specialist Engineering Contractors' (SEC) Group.
Whitehall has said contractors who do not pay suppliers on time could be prevented from winning public contracts altogether.
Cabinet Office minister Oliver Dowden warned in December that serial slackers will be forced to “clean up their act” or face being prevented from winning new contracts from autumn 2019.
But last week it emerged the Cabinet Office had missed its own targets on paying invoices on time for more than a year.
Read more: Suppliers uneasy about Interserve payments
The collapse of public sector outsourcing giant Carillion nearly one year ago, which owed around £2bn to 30,000 suppliers, subcontractors and other short-term creditors when it failed, has thrust the issue of late payments into the spotlight.
According to think tank the Institute of Directors, late payments put 50,000 small firms out of business each year in the UK, costing the economy an estimated £2.5bn.