Deputy Prime Minister Michael Heseltine put the cat among the pigeons last week by continuing to endorse late payments of bills, despite the Government’s current policy aimed at helping small firms by discouraging the practice. But the issue of late payments is moving up the political agenda for reasons other than Heseltine’s contrary stance.
The Government has pledged to review the question of legislation for charging interest on overdue payments in time for a White Paper on Competitiveness due this Spring. Ian Lang, Heseltine’s successor as President of the Board of Trade, is currently holding consultations on whether companies should be entitled to charge interest on overdue payments.
And Environment Secretary John Gummer spoke out against late payments with the publication of his Housing Contracts, Construction and Development Bill last week.
According to Gummer, the bill is designed to encourage prompt payment within the building industry and is “intended to outlaw the notorious practice of ‘pay when paid'”. Gummer said he was setting the Government a target of becoming a “best practice client”, ironic in light of the fact that the Government owes some 240m to small businesses – design consultancies included.
Many consultancy heads are agreeing with the Government and saying that legislation to penalise late payers is a good thing for their businesses.
Jonathan Sands, managing director of Leeds consultancy Elmwood and chairman of the Design Business Association, says: “It’s crucial that people stick to their business terms. Consultancies tend to be smaller than their clients and clients tend to have a lot more clout which they can take advantage of to delay payment.
“There needs to be some legislation or penal retribution for late payers and interest on late payment should be mandatory – it’ll put as much onus on the client to sort out payment as the consultancy,” adds Sands.
Rob Davie, managing director of XMPR, agrees with Sands that some form of legislation is a good thing. XMPR staved off liquidation last month after securing an agreement from its creditors to freeze repayment of debts for six months. The group was threatened because of a cashflow crisis.
“UK clients generally have good payment terms and by and large tend to stick to them,” says Davie. “In the rest of Europe that’s not always the case. Payments could stretch to 130 or 160 days, and even then they’re often late.”
However, Davie says that while legislation would help, he suspects that “big clients would find ways of circumventing this if they needed to”.
But Colin Melia, partner at start-up Egan Melia, says legislation would be seen as a threat rather than an incentive for companies to pay up on time. “As a small company, a lot of business is built on good relationships and this transcends money to a certain degree. Any legislation takes away flexibility and could jeopardise those relationships,” he says.
The Confederation of British Industry’s small and medium enterprise unit also believes that legislation would be detrimental. “Dominant customers would demand extended credit terms while dominant suppliers would routinely exercise their right to interest to secure shorter terms, leaving small businesses squeezed between customers and suppliers,” says a unit spokesman.
The spokesman says a change in business culture to bring about shorter payment times is already evident, and the CBI is currently conducting a survey to obtain more up-to-date information.
The Department of Trade and Industry is giving nothing away about whether legislation on late payments is likely. But it has ruled out legislation in interest payments on debt before, in it’s 1994 White Paper entitled Competitiveness – Helping Businesses to Win. But the current mood of Conservative heavyweights, who are vying for favour from small businesses against Labour, indicates that some sort of legislation could be on the cards.