Does naming and shaming actually work?
It’s common knowledge that an epidemic of late payment is harming -- and in some cases destroying -- British small businesses. The voluntary prompt payment code has flopped and we’re now in the era of ‘name and shame’. But will it work?
Holland & Barrett recently hit the headlines for treating its suppliers “shabbily”. The health food chain took an average of 68 days to pay, and 60% of all invoices were not paid within agreed terms.
The issue of Holland & Barrett’s late payment culture came to a head after a small IT contractor grew tired of the business’s non-payment. The supplier contacted Paul Uppal, the government’s small business commissioner, over an unpaid £15,000 invoice.
The agreed payment terms had been 30 days, but that deadline had long since lapsed. Resolving the issue with Holland & Barrett proved difficult, and to Uppal’s credit, the invoice was paid three days after he intervened in the matter.
But what happened after Uppal’s intervention was perhaps more telling. When he sought an explanation from Holland & Barrett’s CFO on why the invoice was paid late, he was met with silence. When he finally did hear back, he was told that Holland & Barrett was not obliged to explain itself.
It was Holland & Barrett’s intransigence that prompted the commissioner to ‘name and shame’ them in a public report. “Holland & Barrett refused to discuss the details of the delay,” Uppal wrote, and the company “ignored a further request to engage with the commissioner on the publication of this report”.
“Holland & Barrett’s refusal to cooperate with my investigation, as well as their published poor payment practices says to me that this is a company that doesn’t care about its suppliers or take prompt payment seriously.”
Shame businesses into changing their ways
In our private lives, shame is a powerful means of social policing. As kids, we are shamed for our bad behaviour, and even apologies have an element of shaming yourself and admitting you're wrong.
So surely, by replicating this social dynamic within a business setting, we can shame businesses into changing their delinquent ways. But the Holland & Barrett case is instructive here.
The CFO’s response to Paul Uppal, who certainly cannot be shamed for lack of effort, was tantamount to a shoulder shrug. Pressed on the matter, Holland & Barrett stated its “agreed payment terms are a standard 90 days” and its “average payment time is around 60 days”. As for why the £15,000 invoice was not paid, the company simply stated it got “lost” in the payment process running up to the busy Christmas period.
In Jon Ronson’s book, So you’ve been publicly shamed, he observed that as soon as someone refuses to feel ashamed, the effectivity of shaming is dulled.
The existing Prompt Payment Code (PPC) and the government’s new ‘duty to report’ scheme requires large companies to report on payment practices twice a year. Duty to report is a useful way to scope out potential customers, but the PPC’s ineffectivity can perhaps be summed up by its most infamous signatory: Carillion.
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It’s cold comfort to the UK’s small business community suffering under the culture of late payment. Research by the Prompt Payment Directory, a payment rating website for companies, found nearly one-fifth of SMEs said they were on the brink of bankruptcy or liquidation as a result of late payments.
So does naming and shaming work? The Federation of Small Businesses (FSB) backs its effectivity but has continued to press for further action. And there has been some movement: late last year, the government called for evidence on how to tackle late payment. The consultation ran from October to November, and the government is currently analysing the feedback.
Naming and shaming has a track record in NMW enforcement, of course. And it’s been effective there, according to Helen Hargreaves, associate director of policy at the Chartered Institute of Payroll Professionals (CIPP).
“At first glance, I would think Holland & Barrett are out of step with other organisations in terms of how they’ve reacted. If I think back to Tesco and Debenhams, both of whom were shamed for underpayment of wages, and both were very keen to say it was very unfortunate.”
There is, perhaps, a difference of perspective, said Hargreaves. “You don’t want to look like an employer who isn’t paying their employees correctly, whereas late payment of invoices could be seen as being more acceptable.”
So it would seem that name and shame has its limits, especially when applied to late payment: as evidenced by Holland & Barrett’s complete disinterest in the small business commissioner’s investigation. The debt was settled promptly, sure, but that’s just one payment. How many more suppliers are waiting in vain?
AccountingWEB would like to hear about your experience with late payment. Has your business been affected -- and what should the government do to improve the problem?