The introduction of a traffic light warning system to name and shame large businesses that pay their suppliers late, has been welcomed by a leading business figure in Cumbria.

The UK Small Business Commissioner, Paul Uppal, wants the warning system in place that gives small firms a signal about which large businesses pay their bills late.

It comes after research by the Small Business Commissioner and Lloyds Bank Commercial Banking, found that 39 per cent of invoices issued by small businesses in the North West are paid two days later than the national average, and nine days later than the Commissioner’s recommended exemplar of 30 days.

The introduction of the advance warning system of potential slow players for small businesses has been welcomed by Rob Johnston, chief executive of Cumbria Chamber of Commerce.

“Cash is the lifeblood of small businesses who can sometimes struggle to arrange credit if they are forced to borrow unexpectedly to solve a cash-flow crisis when a major customer doesn’t pay them on time,” he said.

“A traffic-light system that gives businesses advance warning of potential slow payers is welcome. It should also encourage best practice by naming and shaming those that don’t settle their bills promptly.”

“We know there are businesses that abuse their supply chain by systematically delaying payments.

“For example, the infrastructure company Carillion required its suppliers to wait 120 days for settlement.

“In effect, Carillion was using its suppliers to finance its business model. When Carillion collapsed a year ago many of its suppliers were exposed to crippling levels of bad debt and followed it into insolvency.”

The research used data from the official payment reporting returns based on the annual reports of 7,010 large businesses.

It concluded that larger businesses take an average 39 days to pay up, compared to the national average of 37 per cent – making the North West one of the worst region in the UK.

Mr Upall said the effect of late payment on small firms in the region can be “devastating”. 

“It impedes business growth, but also has an impact on the lives and mental health of those running small firms,” he said.

“A traffic light system would be a simple and effective way of demonstrating which larger firms have structured their supply chain in such a way that it is more than an exchange of good or services but also resembles part of their financing model.”