A step in the right direction, but UK must strive for more

By Phil McCabe, Thursday 29 September 2011

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The government has decided to fast-track a new EU Late Payment Directive standardising 30-day invoice payments following a recent debate in the House of Commons. The new rules will come into force in the UK in 2012 - a year ahead of the rest of Europe.

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The debate was tabled by the Oldham and Saddleworth, MP Debbie Abrahams and supported by the Forum of Private Business (FPB), which is warning that, although welcome in principle, the move will still not solve the late payment problem – and could leave some UK firms waiting even longer for public sector payments.

The FPB has long campaigned against late payment, which leaves small firms in the UK with a combined bill of approximately £24bn per year, according to the payment body Bacs.

The problem is endemic to global commerce, but there have been some positive developments: for example, a change of legislation in 1998, which the FPB was instrumental in lobbying for, allowed businesses to charge interest for late payments.

However, many large companies simply fail to pay the interest charges as well, and smaller suppliers remain wary of blowing the whistle on large late payers for fear of losing business.

Most recently, as part of its ‘Get Britain Trading’ campaign, the FPB is leading the charge against late payment. As the coordinated voice of its small business members, we are not constrained by the fear of speaking out and regularly name and shame culprits with evidence provided anonymously by smaller suppliers. High-profile offenders include large retailers such as Argos and leading brewers including Diageo and InBev. Although this is a deterrent, the problem stubbornly persists.

One small step
Faced with small firms’ continuing reluctance to come forward, the FPB is currently in the process of building the support of a number of supplier groups to create strength in numbers and give small firms a voice where they would otherwise go unheard.

In addition, the issue has now been debated openly in Parliament, encouraging the government to make its latest move and implement the EU directive a year early. It is seen as such a pressing issue that the Prime Minister has sidestepped his pledge to only implement  EU law when required to do so.

But it is just one small step in the right direction. Another would be for all companies to sign up to the ‘prompt payment code’ introduced by the previous government – at present only a handful have done so.

In addition, the UK’s public sector already operates an ambitious, but rightly lauded, five-day payment target. Although this certainly benefits main contractors it is not always passed down the supply chain.

More worryingly, following the announcement of the EU 30-day standard, in all but exceptional circumstances, there are already suggestions that public bodies are slipping away from this target. While the 30-day standard is positive, the UK should continue to strive to take the lead.

Phil McCabe is senior policy advisor at the Forum of Private Business

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