Late payments: Commissioners, carrots, and sticks
Adam Tavener argues that while the ambition of the small business commissioner to encourage businesses to settle all invoices within thirty days is laudable, he should also be given the ability to name, shame and fine persistent late payment offenders.
I had a very useful meeting with Paul Uppal, the small business commissioner the other day. Paul’s primary focus is to change the culture of late payments that appears to be systemically embedded in certain sectors of SME activity. It is good to know that the government understands this is a problem and have acted to address the issue.
The abusive and unfair practice of late payments, usually inflicted by larger businesses on smaller ones is a disgrace. The problems it causes are not confined to cash flow management – not at all.
Productivity can be crippled, businesses have to decline other work as they can’t fund further contracts and all sorts of emotional, marital and mental health issues also find their roots in this blatant form of bullying (for more on this see my Making late payments a thing of the past video). Indeed, Paul shared with me that he had even known one poor soul take his own life over the issue. What sort of corporate gain could possibly justify all that?
So the creation of the Office of the Small Business Commissioner is an advance, and fair enough, a good move by the Department for Business, Energy & Industrial Strategy (BEIS). But…. whilst the Commissioner can intervene in disputes and adjudicate, his rulings are not binding and can be ignored by miscreant businesses. Paul is therefore forced into a diplomatic type of role where his real effectiveness is in persuading and cajoling, based on a better outcome for all, rather than ordering a behaviour change.
It’s a good job that he really does believe in the carrot, not the stick approach then. His vision for a UK economy where invoices are routinely settled within thirty days is a laudable goal, and his aims to achieve this through persuasion and education are nothing if not ambitious. As business funding providers we certainly support the aims of his office, although we have historically argued for a bit more stick in the mix, not just carrot.
A really good example of how wielding a big stick can have an immediate impact is the recent announcement that the government is acting to ban the unfair contract terms that are imposed, again, usually by big businesses on smaller ones, prohibiting the assignment of invoices to a third party (factoring or invoice discounting).
This prohibition means that the SME cannot finance their cash flow during the term of the contract and leaves them entirely at the mercy of their customer who, in turn, may well impose an early settlement discount. That’s just blackmail and a real abuse.
In recognising this as a significant problem and by acting quickly to outlaw it, the government has acted pragmatically and well and should be congratulated. There is real harm to the wider economy in both the late payment and the restrictive contract terms practices since they both stifle growth and productivity.
I do have some misgivings about the late payments situation though. I find it unlikely that Paul will, in reality, be able to cajole all the businesses involved into behaving fairly. Some businesses’ internal culture is such that they just don’t care. So even if he doesn’t want it, I think that the office of the Small Business Commissioner needs to be given a stick as well as a pile of carrots. Allow him to name, shame and fine persistent offenders and you’d soon see the problem disappear making life just that bit easier for many SMEs, and, as a result, boosting both employment and the economy. Why wouldn’t you? Seems like a no-brainer to me.
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Adam is founder and chairman of Clifton Asset Management Plc, the innovators behind the designated business funding comparison platform Alternative Business Funding, providing high quality finance to SMEs across the UK. Adam hosts ‘...