Amongst all the government initiatives for small businesses to take advantage of there’s a new scheme that will not only combat late payment but also help local authorities unlock £1.5 billion over five years. Modelled on a system pioneered by Oldham Council, where the local authority is earning £2 million just by paying companies quicker and more efficiently. This has now become the Early Payment Programme, which looks to benefit SME finances and local authorities alike.
Much like a loyalty card which rewards buyers with points, the Early Payment Programme lets buyers, or local authorities, to pay suppliers, mainly SMEs, more quickly in exchange for a cash rebate. This means that:
- Purchasing organisations, such as local authorities, gain extra income and a stable base of suppliers.
- SMEs are guaranteed early payment, a huge benefit as late payment is such a prevalent problem for small businesses. Late payments to SMEs add up to around £680 million each year – this is a huge blockage in the UK economy that needs to be addressed.
- Communities in local areas benefit from increased flow of cash. In turn, if the scheme is taken up widely enough, this will mean nationwide economic benefits.
This scheme will not only boost cash flow for SMEs but will also help local authorities. More than a quarter of councils are forecasted to struggle to balance their books in 2012-13 due to drops in central government funding – this has already decreased by £1.6 billion this year.
Local authorities in the UK annually spend £172 billion, including £75 billion on running expenses. A big problem is wasted money on inefficient paper-based payment systems. The Early Payment Programme looks to reduce this by boosting efficiency while helping SMEs in need of swift payment. The better the payment processes, the healthier the whole local economy – and in turn, the national economy.