New Ideas to Combat the Late Payment Problem

Many small businesses are still having difficulties caused by late payments for goods and services supplied to other organisations. If this is a problem for you, you may, like many other small business owners, be reluctant to charge the interest and compensation that is legally allowable by the Late Payment of Commercial Debts (Interest) Act 1998. This is understandable because you need to maintain relationships and get more business.

According to Simon McVicker, director of policy and public affairs at the Association of Independent Professionals and the Self Employed (IPSE), late payment to small businesses ‘jeopardises financial security and damages reputations’. Recognising the severity of the ongoing problem, IPSE has recently launched a report with their proposals for solving it.

The Voluntary Code is Ineffective

Some of it will seem very familiar to your outsourced bookkeepers. With them, you probably recognise the argument that the Prompt Payment Code is not currently effective, and it needs a much stronger commitment from both the public and private sectors. For example, why is it not mandatory to have signed up if you are a supplier to the government or a local authority, or are trying to become one? Those at the end of the line supplying them are so often the ones who have to wait the longest for their remuneration.

Making Late Payment Illegal

Other aspects of the IPSE report are more radical. Some large organisations will only take you on as a supplier on their own terms, which may be 60 or even 90 days as standard, regardless of the terms and conditions normal to your business. IPSE would like to see this outlawed. Current legal sanctions have little power, so it proposes that no payment terms should be longer than 30 days, and that it should be illegal to pay more than 30 days late.

Not only that, but another proposal is to have an automatic fine applied if a payment remains due when it is 60 days late. This could be up to 10% of the total cost of the contract.

IPSE also proposes a Small Business Conciliatory Service to help resolve disputes out of court, providing free advice, or formal mediation services for an economical price. Your outsourced bookkeepers are not the only ones to recognise that small businesses desperately need help when they are up against major enterprises with so much more in financial and human resources.

If you agree with these proposals, you should add your voice to that of IPSE whenever any lobbying opportunities come your way.

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