Govt hopes to spend more with SMEs

Tuesday 1 September 2015

The government has suggested that it would like to increase the amount of money it spends on small to medium-sized enterprises (SMEs) by one third by 2020.

For the 2012/14 financial year, 26 per cent of government contracts and purchases with a total value of £11.4 billion were realised by SMEs, but many of these transactions were carried out by larger intermediary companies. Direct spending currently stands at about ten per cent of the total budget.

Matthew Hancock, minister for the Cabinet Office and Paymaster General, explained: “This is such an amazing opportunity for the country’s diverse and innovative small businesses, and today I urge them to get stuck in. From computers to uniforms - there are so many opportunities for small businesses to work with us, and I want to see more of them providing value for money for the taxpayer and benefiting from our spending.”

Mr Hancock hopes to raise the yearly spend with SMEs by £3 billion, meaning that approximately 30 per cent of the central government’s budget will be allocated to small businesses.

Civil Service chief executive John Manzoni welcomed the announcement and said:” adjust spacing Further opening up our marketplace to small businesses is good economic sense all round - making it easier for them to access and win government business opportunities, whilst encouraging increased competition and market innovation to deliver best value for the taxpayer.”

The news comes on top of recent government measures that are designed to support SMEs, such as the creation of a Small Business Commissioner, who it is hoped would be able to work out how to solve the growing problem of late payments.

This can be a particular problem for SMEs, which can fall victim to what has been dubbed “supply chain bullying”, where larger companies are able to dictate unfavourable payment schedules. It is believed that around £26 billion is owed in late payments to the UK’s SMEs at any given time, and that they are spending £10.8 billion per year in a bid to collect these sums.

Invoice financing has become another hot topic in the world of SME accounting, particularly as a way to get around clients making late payments. It is also popular with businesses who have been denied funds through more established financing methods, as was the case for 38 per cent of SMEs in the second quarter of 2015.

However, tight regulations have prevented small businesses from taking full advantage of the alternative finance method. Figures revealed that 44,000 UK SMEs received £19 billion in capital thanks to invoice funding.

Recently, ministers announced plans to relax the rules, which they claimed would save SMEs £10 billion per year. However, business minister Anna Sowerby insisted that the move was not a substitute for cracking down on late payments.

The latest development is likely to be of interest to SMEs that offer products and services that could be useful for government departments and functions, although it has yet to be revealed precisely how the government plans to further incorporate smaller companies into its supply chains.

By Victoria McDonnell

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