25% of SME's at risk of insolvency

Is this just an inflammatory headline or does it reveal a long standing issue that has been predominantly ignored to date.

This was the headline that was published by EN for Business on 10 August 2015 following a survey conducted by Tungsten Corporation which found that of 1,000 companies surveyed, 23% claimed that late payments had put them at risk of closure. At present our milk producers are fighting the supermarket chains to attempt to achieve a price for milk above the cost of production, I can’t see a situation arising where the farmers have chosen to accept a below cost price without significant commercial pressure being applied.

To address this and other issues relating to the commercial imbalance between small and larger firms the UK government, inspired by the Australian experience in Victoria, are currently in a process of consultation regarding the introduction of a Small Business Commissioner in the UK.

The reason why the UK government is keen to address this is the simple statistic that small businesses are vital to our economic growth as they provide 48% of UK private sector employment and are responsible for around 1/3 of private sector turnover.

At present it is intended that the Commissioner’s key functions will be:

- To provide information, general advice and signposting

    • Whilst this is a necessary function I don’t believe it actually addresses the issue from the headline, as in the main it “signposts” pre-existing methods of dispute resolution. For most SMEs these require both a time and a cost commitment that many cannot afford to enter into.
    • Whilst interest under the late payment legislation has existed since 1998, a recent survey conducted for www.managementtoday.co.uk indicated that only around 10% of businesses have considered using it due to the fear of losing the relationship and the customer. A great potential weapon but not if no one is prepared to use it!

- Offering mediation to resolve disputes

    • If the UK government can match the Victorian model which offers a no cost option for initial consultation and calls followed by a AUS $ fee of $195 per half day ( which is just over £90) of mediation – then this would be a potentially valuable resource. However at present the consultation document does not deal with the cost of the provision of this internal service nor does the consultation deal with the initial fear detailed above. It merely outlines the current mediation fees, an example of which is £425 per party if the amount involved is between £15,000 and £50,000.

- Dealing with complaints

    • This is envisaged to arise when a smaller business raises a complaint against a medium or large business and the Commissioner will act as an “honest broker”. Again the fear of losing the relationship may still prevail, however the Commissioner does have some tools to help to change the perception which are laid out below.

Tools envisaged for the Commissioner

    • The Commissioner will be responsible for monitoring the published data required under the Small Business, Enterprise and Employment Act 2015 on large firms’ payment policies and practices.
    • The Commissioner will be required to publish an annual report on his findings
    • The Commissioner will have the power to make recommendations to the Secretary of State for Business, Innovation and Skills

As insolvency practitioners we have had experience of businesses failing as the larger companies gradually trim the margins whilst increasing the dependency of the underlying business on their custom - with an inevitable terminal result. In their eyes a short term gain is preferable to a longer term business relationship built on trust and mutual benefit. I am not sure that the introduction of the Small Business Commissioner will be able to overturn this modus operandi without significant other tools/censures to apply and will it just introduce another layer of bureaucracy – the consultation closes in late August. accuracy in reclaiming unpaid taxes. Businesses should therefore be well aware of these risks and seek advice if they believe they have any debt.

Julie Swan


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