Debt policy given little credit

The small business sector has given the thumbs down to legislation aimed at penalising late payers

In its enthusiasm to show its commitment to small businesses, the Government appears to have jumped the gun on the issue of late payment. Its proposed legislation, giving small businesses statutory rights to claim interest on late payment of debt, upset four of the five bodies representing Britain’s small business sector.

Only the Forum of Private Business (FPB), the smallest of the bodies, came out in support of the legislation, which it sees as the culmination of its 10-year campaign on this issue on behalf of its 24,000 members.

Small firms minister Barbara Roche has promised consultation before the proposals become law.

In a FPB survey of its members last March, 93% of respondents claimed to favour the proposed legislation. `Voluntary, non-legislative measures have not worked and we cannot live any longer with bigger businesses abusing the system,’ said an FPB spokesman. By its estimates, the average delay on payment from the date of invoice is 77 days, some 47 beyond normal payment terms.

A survey by Intrum Justitia, Europe’s largest debt collection agency, puts the UK’s average delay at 18 days, which is at the bottom of a table of 16 west European countries. The FBA claims that in countries where legislation similar to that proposed for the UK has been introduced, late payment has fallen. Figures from Intrum Justitia support this, with Scandinavian countries largely topping the table with average delays of just six or seven days on similar payment terms to the UK.

But many small businesses say the effectiveness of the legal process rather than the law needs improving. The Confederation of British Industry, the British Chambers of Commerce (BCC), the Institute of Directors and the Federation of Small Businesses, say legislation alone is not enough and will encourage bigger companies to insist on longer payment terms from the outset.

`Small firms will get squeezed between the dominant customer and supplier and will bow to pressure,’ said a Federation of Small Businesses spokesman. Representing some 96,000 members, it wants the Government to give courts more power to force debtors to pay up. It also wants the upper limit which can be claimed through the Small Claims Court extended from £3,000 to £5,000, so small businesses can make bigger claims without incurring extra time and expense. A fast-track for disputes in county courts, supported by the CBI, was proposed under the old Government. This aimed to give businesses a set date for trial and fixed reasonable costs, whatever the outcome.

But it is a change in the business culture towards improved credit management that is most needed, say the CBI and BCC. Even the FPB agrees that the proposed legislation can only be a beginning. It says the threat of legal action would be enough for most late payers to change their attitude. `Late payers would never know which or how many suppliers might collect interest, or when. This would make late payment a very dangerous and costly policy,’ it says. Under FPB proposals, outstanding debt could be claimed up to six years from the original late payment.

The BCC, however, wants the Government to drop its legislation proposals. It claims there is no evidence that it will improve payment conditions. It wants existing resources, such as Business Links and chambers, to use their in-house expertise to help small firms evaluate their credit management systems. Birmingham Chamber of Commerce already offers this service and the BCC would like it extended throughout its nationwide network.

`You can’t legislate to change culture,’ said Ian Peters, BCC deputy director general. `We should campaign for change through better education, simplified court procedures and more promotion.’

By Arlene Foster