It has been a focus of governments over many years to tackle the late payment of debts by customers. Whilst some of the innovations, including the ability to impose interest on late paid debts, have assisted in a minor way, these methods do not take into account the commercial realities faced by most small businesses.

Let’s face it, if your customer is a large company and key to your business, you are unlikely to take aggressive recovery steps if they pay their bills late as you would, quite rightly, be concerned at losing their business. This can then entail seeking financial products to bridge the payment gap, thereby reducing your profit margins. This, combined often with competitive tendering for some contracts, can even force some businesses to the brink of insolvency.

It was encouraging to see that a Small Business Commissioner has been appointed to look after small businesses with a remit to deal with this very issue, although it is hard to say at this stage what additional consideration of this is going to achieve (see the Small Business Commissioner Government Response document as a PDF ››).

Further to this, a consultation paper has recently been released, giving SME’s the opportunity to contribute their views on unfair payment practices. One of the key motions is to enable representative organisations to take action against unfair contract terms on behalf of SME’s. It also includes proposals to make amendments to some of the EU Late Payment Directives in favour of small businesses. The window for responses will close on the 27 November. You can find the paper here for more information, or to have your say ››

The simple facts of the matter are that handing additional punitive measures to small businesses is not going to tackle this issue. These proposals may go some way to assisting smaller businesses on the issue of late payments, but only if the Commissioner has the teeth to name, shame and fine larger businesses without naming suppliers is there a likelihood of serious change. This might be seen as unfeasible, but note the example of Tesco, which following heavy criticism of its treatment of suppliers earlier in the year, recently announced a change in its payment terms, whereby its smallest suppliers will receive payment within 14 days. Bad press could be a powerful tool here.

Mark Phillips


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