By Richard Johnstone | 7 January 2015
The government is unable to show that its policy of paying most undisputed invoices within five days is having the intended effect of helping small- and medium-sized businesses bid for work, auditors have said.
An examination of the effectiveness of the policy to pay 80% of undisputed invoices within five working days by the National Audit Office found that although the commitment was welcomed by businesses, it was not clear if it was providing value for money.
Auditor general Amyas Morse said there had been ‘a disappointing lack of effort by government to check whether the implementation of the policy is actually helping SMEs’.
Currently, around £4.5bn of the government’s annual £40bn spend on goods and services is spent with smaller firms.
Auditors also found that the payment performance data published by departments had overstated the quickness of payments in the four cases. Examination of figures published by the Ministry of Defence, the Home Office, the Department for Business, Innovation and Skills and the Cabinet Office found their reported performance is skewed in their favour by a high volume of low-value electronic transactions with a few large suppliers.
The MoD, the Home Office and DBIS all met the 80% target, but auditors said that paper invoices, which were often used by smaller firms, were not properly recorded upon receipt, which made analysis of overall effectiveness difficult.
The Paying government suppliers on timereport called on the Cabinet Office to set out the principal objectives of the five-day payment commitment and its benefits and costs, and to lead its implementation in the public sector.
Responding to the report, Public Accounts Committee chair Margaret Hodge said that government was ‘not getting the basics right when it comes to promptly paying small and medium-sized enterprises’.
She added: ‘It beggars belief that government departments do not record the date when paper invoices, commonly used by SMEs, are first received, and that around a third of SMEs don’t get paid within 30 days by their public sector clients.
‘The Cabinet Office, representing the centre of government, should be doing much more to improve current poor practice in departments, which can put SMEs out of business and jeopardises government’s ability to deliver value for taxpayers’ money.’
However, the Federation of Small Businesses’ policy chair Mike Cherry said that central government had recognised the absolute priority of paying its suppliers on time.
‘Many in the private sector still have a lot to learn about paying bills in good time, and the government has the opportunity to help teach them,’ he added.
Responding to the report, a government spokeswoman said that progress had been made, but admitted there was still more to do.
‘That is why from this month we are insisting on prompt payment within 30 days all the way down the public sector supply chain,’ she added.
‘As part of our long-term economic plan this government is reforming public sector procurement, saving taxpayers £5.4bn last year alone compared spending before the last General Election. Our reforms are supporting suppliers of all sizes and we have substantially increased the proportion of business won by small firms.’
