Wednesday, 12 December 2018 14:30

Politicians Demand Mandatory 30-Day Payment Terms - But Would It Work?

The rhetoric surrounding the UK’s late payments culture was ramped up another notch this week as an influential Parliamentary committee recommended a mandatory 30-day payment term to stamp out the problem.

Publishing its Small Business and Productivity report, the Business, Energy and Industrial Strategy (BEIS) committee concluded that ‘disgraceful’ behaviour by big firms in particular on payments was seriously hampering output and growth amongst SME suppliers.

It said that efforts made so far by the government to ensure small business owners were paid fairly and on time, including measures such as the Prompt Payment Code and the appointment of a Small Business Commissioner, had failed to make a dent in the issue.

Consequently, the report’s authors concluded, it was time to back up the tough words of the past with statutory action, starting with making it law that all payments must be settled within 30 days.

It is the sort of recommendation campaigners and small business leaders have been waiting to hear for years - but would it work?

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Reasons not to get carried away

There are a few reasons why we should not get carried away with any victory celebrations just yet. For a start, this is not an indication of government policy. It is, rather, simply a recommendation from a committee of MPs which, as scathing as it has been about the behaviour of big business in recent years, has so far been as unable as anyone to shift the government from its steadfast refusal to tackle the issue through the statute book.

Secondly, given the turmoil at the top of government over Brexit, it seems extremely unlikely that anyone in Whitehall is about to choose this moment to see the light and admit they should have taken a tougher line with large corporations years ago. Much more likely, this is yet another report full of good intentions that will be kicked into the long grass, never to be heard of again.

Aside from the politics of getting such measures through, there are some important practical considerations. While excessively long payment terms being enforced on suppliers is as much of an issue as companies just not paying on time, there are industries where 60-day terms are the norm and the supply chains function perfectly healthily on them. We can imagine there being a backlash against such proposals from these sectors of the economy.

Finally, the questions we keep coming back to - how will it be policed, and what will the sanctions be? All too often in the debate on late payments, we find that the proposals put forward to remedy it lack the crucial substance, which is what will happen to companies if they decide to carry on doing as they please.

Big businesses play the late payment game from a position of power, knowing they risk virtually nothing from it. Until we make unfair payment terms or ignoring contractual obligations a serious risk to these corporations, there is little hope of ending the problem.

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