U.K. Looks to 30-Day Payment Rule to Protect Small Business

(Bloomberg) -- Bankrupt contractor Carillion Plc was taking about four months to pay its suppliers before its January collapse. The minister responsible for small firms says 30 days should become the national norm.

The government must “make it unacceptable for big business to finance their cash flow from small business,” Small Business Minister Andrew Griffiths said in an interview on Wednesday. They should fall in line with what the state does: pays suppliers within an “ethical” 30 days.

“Small businesses, if that money was in their bank account, they’d be investing it, they’d be growing their businesses, they’d be taking on new technology,” he said. A consultation on the issue is “imminent.”

The case of Carillion has exposed a culture that has contributed to the recent slide in U.K. productivity, raising alarm bells in Prime Minister Theresa May’s government. British workers produce in five days what Germans and Americans do in four. What to do?

The Business Department, where Griffiths works, wants to improve companies’ use of technology, including cloud computing and e-purchasing, which it hopes will add 100 billion pounds ($134 billion) to the economy.

‘iPhones, Apps’

“It’s kind of remarkable to see that there are still so many businesses out there that for instance have paper-based accounting systems,” Griffiths said. “They don’t use iPhones and apps and new technology. They’re not on the cloud. Very simple, basic things that if adopted by a business could just make them so much more efficient and effective.”

Business investment is also being held back by fear of borrowing, Griffiths said, after a Financial Conduct Authority report into Royal Bank of Scotland Group Plc’s small-business lending unit found it put revenue growth above the needs of its clients, leading to financial distress in one in six cases.

“There’s a fear among small businesses of a loss of control if they borrow from those traditional banks,” he said.

©2018 Bloomberg L.P.