Paying your dues: the late payment problem
Posted on 21st June 2018
It's some time since we had a guest blog, but this one is interesting, given that the government seems to be going to try to do something about one of the constant problems for small businesses, namely, getting paid on time.
It’s a perennial problem for businesses, especially start-ups and small tech businesses, but despite the fact that legislation exists to allow companies to take action against late payers by charging interest on outstanding debts, virtually no-one does so, largely for fear of offending their customers.
Over a long career in the corporate world of what used to be called recruitment advertising, I had much experience of this problem. We used to have an internal target of 42 debtor days, with internal fines and rewards for exceeding or beating it. As one of the offices I was responsible was in Ireland this was hopeless: the Irish persistently paid their bills at least 10 days later than our 42 day target and were quite relaxed about doing so. They may have improved since then but given the importance of tech to the future of Ireland, to say nothing of the Scotland and the UK generally, anything that holds up business expansion is to be decried. And to illustrate just how big a problem this is, Lloyds estimates that some £500 billionis tied up in working capital related to overdue bills.
It is well documented that big companies can be slow payers. This was also my experience in my agency days. One huge European aerospace firm took well over 100 days to pay our bills. An oil services company in Aberdeen wrote to us to say that all suppliers were to be on 90 days, like it or lump it. Then there was the public sector, which, you would think, ought to pay its bills on time. Most do, but one or two (a major university and a major Health Board) were dreadful.
Then, over seven years ago, I joined the ranks of the self-employed and had a natural concern that, as a very small business, cash flow would be an issue. In fact it’s been generally fine. I’ve only had to get my lawyer to two firms, and on both occasions a strongly-worded letter did the trick. The vast majority of my customers pay their bills on time and I’ve noticed that the smaller the firm the quicker they pay. I make a point of reciprocating and paying not just business suppliers but tradesmen and others doing work in our house in days rather than weeks.
All of this is by way of preamble to the story that appeared in The Times recently, which introduced us to Paul Uppal, described as “the man with the unenviable task of tackling Britain’s chronic habit of paying its dues late.” More specifically, he is the UK’s first “Small Business Commissioner,” charged by the government to help companies get their bills paid on time. There is, however, one significant problem. Mr Uppal says that in his days running a small construction firm he would have been reluctant to use such a service. And almost everyone who has run a small business knows exactly what he means.
That’s a pity, because it’s a very real problem, with the Federation of Small Businesses estimating that late payment causes tens of thousands of firms to go bust every year. Moreover, there are regular instances of contractors being bullied and large contracts being changed midway to more disadvantageous terms. Mr Uppal is reported as saying, “Some of the contractual stuff I’ve heard going on is worse than bullying, it’s abuse. For many small businesses, it’s a dream to get a deal to supply a large company. Often, it’s the start of a nightmare.”
It is a nightmare for the firms involved, but the government does not help itself. The existing voluntary code for “prompt payment” says “that contractual terms should be adhered to and invoices paid in 60 days other than in “exceptional circumstances.” Leaving on one side the fact that 60 days is anything but prompt, it’s also worth noting that this is the voluntary code that Carillion signed up to…
Alastair Blair, thePotentMix
Posted in Guest blog, News
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