Election 2015: How will Parties Tackle Late Payment?
With the 2015 General Election nearly upon us we thought we’d take a look at the policies each Party has proposed to tackle late payment in business.
Late payment is an enormous issue facing businesses, with BACs stating £32.4 billion is owed to SMEs in figures released February 2015.* Whilst this figure is down from January 2014, which stood at £39.4 billion, it is still astronomically high, and is indeed still having detrimental impacts to businesses.
I must mention that this is an entirely informative blog about the election and is not intended to highlight CMG UK’s political preferences in any way, I am simply evaluating the effectiveness of how each party plans to tackle late payment. Parties are listed in alphabetical order to remove any indication of preference, and, whilst I have tried to comment in equal amounts on each party’s policy, due to lack of information for some this has been near impossible.
Proposals for tackling late payment in business:
Business minister Matt Hancock announced that Conservatives will strengthen the Prompt Payment Code should they win the election. The Code will emphasise standard 30 day payment terms, with a limit of 60 days in which businesses should make payment. It has also been proposed that large businesses should be held accountable for how long it takes them to pay their suppliers by announcing the fact.
Limiting payment terms to 60 days is a very appropriate target for businesses, especially as many larger businesses have come under fire as of late for stipulating 90 days within their contracts, in what has been labelled ‘supply chain bullying’. I do have to question, however, is how this would be enforced, as relying on businesses to implement this as a moral obligation is, unfortunately, likely to be unsuccessful.
Making businesses accountable for their late payments is a great idea in theory but convincing businesses to reveal this information could potentially be tricky to implement within each industry across the UK. A valued reputation is essential in business, and therefore I can predict that businesses may be reluctant to reveal information to the public that could damage this.
Green Party plans for late payment were difficult to come across, the issue has indeed been addressed by the party, but there did not appear to be any concrete plans on how they would suggest remedying the matter.
Articles have stated their stance on the issue as being vehemently against current late payment culture and recognise it as a tricky problem to solve. They also stress that they are big supporters of the Prompt Payment Code; however, it is quite clear to see that the Prompt Payment Code has not been working to the scale that it needs to in order to reduce the enormous figure owed to SMEs that I mentioned earlier, and therefore it is clear to see that Green Party would need a much more well defined and clear plan of action rather than relying on procedures that are already in place.
Labour have taken a similar approach to the Conservatives; proposing that businesses responsible for late payments should announce themselves publicly and provide detail of the compensation they have given to their suppliers, consistent with EU Late Payments Directive.
The party have also announced that they plan to give business organisations, notably the Federation of Small Businesses, the ability to take control of incidents of late payments on behalf of its’ members.
In terms of businesses announcing their late payments, whilst the idea of businesses naming and shaming themselves is a pleasing thought, again I question how effectively this would be implemented, on a number of levels, but most importantly how to encourage late paying businesses to do this in the first place, and how honest they would be in relation to their payments.
I do believe Labour’s plan to involve business organisations in late payment to be an effective method, however, the success of this would rely heavily on defining and prioritising businesses that have suffered from late payments. The Federation of Small Businesses has been very vocal on the issue of late payments and I do believe they would make huge leaps in tackling late payers if given the appropriate powers in order to enforce this.
I could find very little mention of late payments in relation to the Lib Dem’s manifesto, that is not to say that it they haven’t acknowledged the issue, but if they have it has not been widely reported.
What they have mentioned, however, are plans for a third of government contracts to be awarded to SMEs, amounting to over £15 billion.
I am dubious, however, as to whether or not this could cause more harm than good to the issue of late payments, as government bodies have themselves continually been highlighted as being notorious late payers to their clients.
In a recent press release Deputy First Minister of the SNP stated his plans for the issue of late payment, which, for the most part, would involve pushing to place Prompt Payment measures into law. He also spoke of the powers of devolution that the party is using to aid small businesses, using the small business bonus to provide business support, and briefly mentioned their 10 day payment target to encourage prompt payment from businesses.
The SNP’s target of 10 day payment, from my own experience, is extremely optimistic and would be very difficult to implement amongst businesses; a more sensible target such as 30 days would be much more appropriate, especially in light of the fact that Late Payment Legislation, introduced to tackle the issue of overdue payments, begins after 30 days have passed.
UKIP have been very vocal about their plans for late payers, stating within their manifesto that they find big businesses exploiting smaller firms by delaying payments is unacceptable. It has been proposed that in order to tackle the issue they will introduce significant sanctions for the offending businesses.
Under these new rules businesses would turn to HM Revenue & Customs to confidentially report and investigate consistent late payers which, if the company in question is found to continually exceeding payment terms they will be sanctioned with fines.
Whilst I do respect is the fact that UKIP have strong opinions on the issue of late payment and are keen to put a robust system in place to tackle the issue, I have to question exactly how their proposed sanctions would work. Firstly, how exactly would HM Revenue and Customs investigate late payers? Do HMRC have the resources to take on this responsibility in the first place? And finally, is this activity even in HMRC’s remit?
On the other hand, I am a strong supporter for the proposal of introducing fines for late payers, although I would suggest this system would need well defined boundaries as to identify why these companies are late payers in the first place. Reasons such as, not having enough working capital, or being paid late themselves would need to be approached in an entirely different way to a business that was tactically delaying payment to generate cash, for instance, or investing in other areas of the business and therefore using the cash to pay other suppliers.
To conclude, in my opinion no party has hit the nail on the head in terms of tackling late payment in the most effective way; however it is extremely encouraging to see parties actively engaging with the issue of late payments and in the process of finding viable solutions to this issue that, if not dealt with swiftly and appropriately, can have a detrimental impact on the UK economic climate.
Find out more about effective collection strategy to encourage prompt payment