It is based on a similar service in Australia, which has been hailed a success.
New business secretary Sajid Javid, said when introducing the service in a speech on 19 May: “There’s a situation familiar to small business owners up and down the country. A letter turns up from a larger customer changing payment terms, or charging them to remain a supplier and in some cases even deducting that charge against payment owed.
“This behaviour is an outrage. It’s bullying, pure and simple.”
In 2008, he said, late payment cost British business £19bn, and this year that’s set to exceed £40bn, with more than £30,000 owed on average to a small business.
Figures from BACS show that SMEs were owed £32.4bn in January 2015, although this was down from £39.4bn in January 2014.
A Department of Business Innovation and Skills (BIS) spokesperson said: “The Small Business Conciliation Service will help businesses settle payment disputes without the need for costly legal action. We know smaller businesses can be reluctant to launch legal challenges over late payment and, in some cases, are not even aware of their legal rights; this is where the service could help.”
In addition, the government is hoping a name and shame policy will assist. From April 2016 large companies will be required to publish both their standard payment terms and data showing how closely they stick to them, under the Small Business Enterprise and Employment Act, passed earlier this year.
No politician has yet gone as far as legislating for a mandatory maximum payment period for private companies – local and national government transactions have been subject to a 30-days limit since 1998 – but BIS says it has recently strengthened the Prompt Payment Code to promote 30-day terms as standard for all signatories, with 60-day terms as a maximum. Drinks giant Diageo recently committed to 60-day payment terms.
“Late payment affects every business to one degree or another,” says Hartgraph director Steve Walters.
“Middlemen often won’t pay until they’ve been paid by their client, but 90 or 120 days is too long to wait for payment. If you’re a good company like Hartgraph you will have paid your suppliers within 60 days.”
The issue has been plaguing the printing industry since the last century, regualary cropping up in the pages of PrintWeek. The recent recession exacerbated matters as some companies deliberately stretched their payment terms to try and help with cashflow and others felt less able to refuse work from any direction, even if they suspected they would have to wait some time for cash to come through.
In theory, all businesses are subject to maximum 60-day payment terms, under The Late Payment of Commercial Debts (Interest) Act, 1998. This allows the owed business to charge interest on late payments.
However companies are not bound by the timescale under the Act, as they can “expressly agree” to other terms, so long as it’s “not grossly unfair”.
Printers generally welcome anything that could help but are not counting their chickens just yet. One concern is that any system which involves potentially upsetting a valued client is no more likely to be used than existing methods, such as charging interest or taking late payers to the small claims court.
“In my experience, independents dealing with a larger client that’s a significant part of their business are wary of being too aggressive,” says Precision Printing commercial director Paul Mason.
“Some [big clients] pay very quickly but others know that they are big and in theory you’re going to be a little bit scared to use such a service.
“Debt collection in some businesses is a significant issue and it causes huge cashflow problems and I think the new service needs to be enforceable, understandable and people need to be aware of it. Our industry has been very troubled for a few years so when you get a customer you want to try and keep them as long as possible. If you fine them just because they are behind terms it doesn’t help the relationship.”
In print it’s often print management companies that have a reputation for offering long payment terms or paying late.
Solways owner Tim Solway says: “I know of one very large print management company that takes 90 to 120 days and I won’t deal with them. For me it’s unacceptable. It does happen in print, particularly a lot of the print managers, but you as individual business owners choose not to do business with them. I need my cash to pay my suppliers.
“Profit margins have reduced over the years and there’s no fat anymore. When you’re breaking even, you really can’t afford a bad debt, it will sink a business.”
PressOn managing director Andy Wilson agrees: “I’ve seen perfectly viable businesses go to the wall just through poor payment by its debtors.”
Of course falling foul of late payments is not always exclusively the fault of the client. Business owners say good credit control is essential.
“A lot of it is having the right people in place, you have to not be afraid to put people on stop if necessary,” Walters adds. “You try stretching out Heidelberg, they’ll put you on stop immediately. You can’t be afraid to turn around to your clients and have a firm but polite conversation.”
Hollingworth managing director Paul Hollingworth says: “We try to be careful and minimise risk. If you have a bad feeling about someone you can FSB them and pay for a credit check. The good thing about web-to-print, of which we are doing more, is you get cash in the bank before you print.”
Solways uses a solicitor to check out companies prior to doing business with them – “I say I ‘Thomas Higgins’ them. It costs me £2.75,” says Solway.
“I don’t have any problem with late payment, it’s never been an issue. The problem is where the individual business gives too much credit and lets the client run away with it.
“Big companies feel they can string you out. We don’t have any clients that large, but I’m very aware of the problem. If the government is in a position to offer a service that can act as a kind of go-between and if they can offer some kind of leverage that would be good news.”
And printers can always do with more of that.
Government seems to be striking a sensible balance
Charles Jarrold, chief executive, BPIF
The BPIF is wholly supportive of action to reduce the length of time that suppliers wait to receive payment, with “improving access to funding” being one of our five ‘Priorities for Print’.
It is regrettable that it’s increasingly seen as good business practice for large businesses to require long credit periods from suppliers, and then sometimes to actually pay even beyond this period. In a mature competitive economy, it’s often difficult for suppliers to resist this pressure, particularly as there is frequently an asymmetry of power, with only the procuring entity knowing who among alternative suppliers has actually agreed to long credit terms.This is why government action has been necessary.
The Prompt Payment Code is an effort to address our concerns in this area, using a ‘name and shame’ approach, and seeking to establish a culture where 30-day credit periods are once more seen as the norm, and a 60-day limit as the maximum.
The nature of the services that our sector provides means that even the largest print organisations are usually supplying entities much, much larger than they are, and the same can obviously be said for all the other smaller print organisations.
As capital-intensive businesses operating on small margins, print companies are therefore particularly vulnerable to being put under pressure to accept long payment terms. Not only does this place great pressure on cashflow, but there is the additional risk of significant loss should a customer default on payment.
We are therefore very pleased that the government recognises this problem and have given it visibility by taking the action they have. We support the voluntary code, and in a period where Parliament is committed to reducing red tape, their approach seems to strike a sensible balance. We will however continue to monitor our members’ views and ensure that they are represented in our ongoing discussion with government.
Will the government ’s proposed service make a difference?
Paul Hollingworth, managing director, Hollingworth
“It might help some companies, but it won’t have any impact on our company. With the academic sector you know you will get paid. But now we have more print jobs with trade companies we ask 50% up front and before dispatch and if they don’t do that we won’t deal with them. We do deal with some big printers who take 90-100 days to pay out but we account for it.”
Paul Mason, commercial director, Precision Printing
“It depends how serious the government are about it and whether the companies take it seriously. If it’s just a case of writing a letter to them it would be ignored just as much as any other letter. I’d be very surprised if they take much notice of it. A very stern letter with the threat of publication of poor payment practices would be more effective. If they enforce it then I think it’s a very good thing.”
Andy Wilson, managing director, PressOn
“What if the late payer is your biggest customer? Not only are they not paying you but you need to replace the revenue lost by ceasing trading with them. In my opinion the government would better serve us by imposing must stricter rules and consequences to those companies that flout their terms. In France, going outside agreed terms can result in a fine of €15,000.”