Liz Barclay: brought up in the sector
Interview: Liz Barclay, Small Business Commissioner
Small firms, we’re constantly told, underpin the economy, though they also have to suffer many of its burdens. Like the constant struggle with late payments, one of the biggest causes of company failures and now getting the full attention of a government-created agency led by one the UK’s foremost consumer affairs campaigners.
“The first issue we covered on the BBC’s Wake Up To Money on Five Live was late payments and that was 30 odd years ago,” says Liz Barclay, who was appointed Small Business Commissioner last July to spearhead the national effort to crackdown on poor payment practices.
A survey by the Federation of Small Businesses earlier this year found more than 440,000 small firms could be forced out of business by the late payment crisis and at least 8% warning that the problem has become so bad that it was threatening the viability of their business. Solutions seem to elude policy makers, but Barclay believes that by working together government and business is making progress.
She has been in Scotland, meeting a number of business organisations and Ivan McKee, Minister for Business, Trade, Tourism and Enterprise. Many of the issues raised were the same as those featured in that BBC transmission three decades ago and will be familiar to small firms across the UK.
Explaining the current legislation, she says: “If you don’t have a contract that says you will be paid within a certain number of days, then the default situation is that you will be paid within 30 days.
“But a lot of small companies don’t realise they are signing contracts with payment terms that are much longer than that. So we see a lot of problems around contracts with unfair payment terms with 60-90 days. I’ve even seen 360 days.
“If you’re a small business trying to manage your cash flow and you are waiting that sort of time, even three or four months, imagine what your employees would say if you asked them to wait that long to get paid?
“We treat our small businesses differently when they should be treated in the same way as the consumer and employee. Some big companies are treating small businesses as their bank to fund their own operations out of the money that they haven’t paid to their suppliers.”
‘Many big firms have realised that their small suppliers are the lifeblood of their business’
She says there is an issue with the financial services sector which has “provided more products” such as invoice factoring, but these “do not tackle the root cause of the problem”. There are indications, she says, that the Scottish government is minded to do more to help, even to enact further legislation if it is deemed necessary, while the pandemic has encouraged larger firms to look into their practices.
“Many of these firms have realised that their small suppliers are the lifeblood of their business. If they go bust it will mean a very costly exercise to get new ones and they may not find ones that are as good. So they need to look after them.”
She adds that large firms are realising that if small firms fail or withdraw, they lose the apprentices and training they provide.
“This has led to a lot of good practice and companies moving to paying with seven days. We need that good practice to carry on post-pandemic, but we now have another layer of constraint on businesses because costs are going up.”
Her interest in the challenges facing small firms is not only a professional one. She was raised on a farm near Belfast and her grandfather and uncle ran building firms while a great aunt ran a convenience store. “So I was brought up in the small business sector”, she says. She began her career as an adviser and then CEO with Citizens Advice before moving into radio and TV production and presentation specialising in business and consumer affairs.
Barclay was podcasting and blogging when the Commissioner job came up and was encouraged to go for it. She took on the role last July and has begun meeting key people around the country face to face after months of “eyeballing” them on Zoom.
Among the measures introduced to tackle the late payments issue, and which have had some success, are project bank accounts (PBAs) which sees money put into a pot which is then shared out to the suppliers as the work is completed. PBAs operate mainly in the public sector, not so much in the private sector.
“These are something that the construction industry is very keen on. They are not perfect but when the job is done everybody gets paid so it means the smallest guy in the chain doesn’t have to wait for the next guy up to get paid.
“As far as I know there are no moves to legislate around it as yet, but I do know the Scottish government is looking at it.”
‘In many cases pay departments of big businesses don’t understand how small businesses work’
She says policy makers have open minds on the subject and “really do want to see poor payment practices made something of the past”, but she say it is a “hugely complex area” and finding solutions is not easy.
“Even in other countries where all sorts of measures have been tried it has not necessarily made that much difference. In fact in the UK we are not that bad. The average payment time is 36.3 days, though that hides lots of bad practices at the top end.
“Small businesses perceive big businesses to have all the power and they are scared to push back and say ‘no, I need to be paid in 30 days’.
“In many cases the pay departments of big businesses don’t understand how small businesses work. They are figures people. If you are faced on a Friday afternoon with paying a bill of £30,000 to a large firm, the figures person will think this is more important than paying a small firm £300 because it’s not very much and they can wait until Monday.”
That one small delay can lead to big problems for small firms, says Barclay, including the impact it has on the health and wellbeing of small business owners.
“Small firms are trying to manage their cash flow and they do not necessarily want to borrow the money,” she says. “If the bank won’t lend then they may have to turn to their family or run up their credit card or overdraft. That leads to sleepless nights… and those working in the payments department of a big company won’t know that.
“We are beginning to see a lot of mental health problems coming through among people who have tried desperately to keep their business afloat.”
There is one other factor encouraging large firms to change their ways and it comes down to protecting their own interests – ethics. It is a key factor encouraging companies to remain part of the Prompt Payment Code.
‘We need to see payment practices as part of the governance measures investors look at’
“We find companies asking us for help because they are really scared they might breach the code. Being realistic, some companies may have been good payers but they themselves find they have not been paid a big bill and so they can’t pay their suppliers.
“Remaining on the code is a reputational issue. If you want to be seen as an ethical firm then the code is a really good indicator that you have looked at your processes and made improvements. You don’t want to be seen as the bad guy who doesn’t pay on time.
“This is where ESG comes in. We need to see payment practices as part of the governance measures that investors look at.”
For those who do not voluntarily improve their practices, and may even deliberately play the system, there are calls for more severe penalties, but Barclay says there is no evidence that those so far introduced make much difference.
“We have seen naming and shaming in areas such as minimum wage and gender pay gaps, but has it really made a difference? I don’t really think so. Fining? How big a fine would have to be imposed to make a huge difference to a big company and would they just pass it on?”
While Barclay’s remit is about payments and payment disputes, she says it is the fundamental building block of a healthy and resilient small business sector. She says they won’t perform at their best unless they are certain they are going to get paid.
“If you take net zero, for instance, 60% of small businesses say they do not know what practical measures they need to take. Until they get paid they won’t invest in it. They won’t digitise or upskill. So payment practices are a keg element of economic growth and prosperity.”
PERSONAL CHECKLIST
Birthplace: near Belfast
Career highlights: Adviser and then CEO with Citizens Advice before moving into radio and TV production and presentation specialising in business and consumer affairs. She was Financial Inclusion Commissioner; Chair of the Fair by Design Campaign; a non-executive director of two organisations and a member of the Standards Boards of The Equity Release Council.
Other activities
Worked with boards and small businesses on improving governance, trust and culture, inclusion, and understanding customer behaviour. She coaches communication and presentation skills, chairs national and international conferences and has written several books on business.
Aims for small firms other than solving late payments
Would like to see end to the term Small and Medium Sized Enterprise (SMEs)… “It doesn’t serve anybody well. The needs of a freelance are completely different to those of a medium sized business.”
Other interests
Walking my dog, investigating restaurants
If you could invite three people to dinner, who would you choose?
My grandfather Sam McGrath, my first BBC producer Gordon Hutchings and my dear friend Sheila Sinclair, all very intelligent wore their learning lightly. Brilliant sense of humour and great story tellers.
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