Tuesday, 02 December 2014 10:16

You're fired! Why Lord Sugar wants more done on late payments

Lord Sugar, the artist formerly known as Sir Alan, has made his feelings on late payments very clear - and, like us, he's less than impressed with the government's efforts to tackle the problem.

In particular, during the second reading debate on the Small Business, Enterprise and Employment Bill, he criticised the lack of "practical, common-sense" solutions to the problems faced by small businesses.

"One of the most crippling things for small business is to cope with late payment, or in some cases no payment at all, and it's sadly becoming an increasingly common issue," he said.

"It only takes a few late payments to bring a small business close to the edge. This Bill will do very little to help solve this problem.

"It offers no incentive for companies to make payments on time or any deterrence for paying late. The onus will still be on the small businesses, who are being short changed, to chase for payment."

And that has been the crux of the problem throughout - the government could introduce mandatory penalties for late payment, but that could prove to be a step too far.

Imagine a loyal client - perhaps a small business in their own right - who has encountered cash flow problems temporarily.

Would you want the option of giving them a fee-free extension on their invoice deadline, or a government-enforced mandatory penalty you have no option but to charge?

The point is, there is plenty of legislation available to small businesses already to enforce action on late payments, but crucially it still leaves the freedom to do so, or to not do so, in the hands of the SMEs themselves.

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David vs. Goliath

Lord Sugar also said: "We need the government to be tougher in showing companies that late payment is not an acceptable part of our business culture."

Again, the sentiment behind this is nice, but the government are endlessly working on new ideas and initiatives, most of which come to nothing: the Prompt Payment Code (voluntary), the EU Late Payments Directive (optional to enforce) and so on.

The message that late payment is unacceptable will not come from the government, any more than it should come from any other third party with no direct involvement in your business dealings.

Nor should you expect it to come voluntarily from the big brands, as the Prompt Payment Code seems to believe will happen; aside from some minor positive PR, there's no compelling incentive for them to commit to it.

Only SMEs themselves have the power to clearly send the message that late payment is unacceptable, and the legislation and court support (not to mention a fully matured debt recovery industry) to help you to do this is all already in place.

Taking it to extremes, if you have a persistent non-paying customer, however big they might be, you have the right to petition for them to be wound up.

It's an outlandish action to take - and generally amounts to a wind-up of a different kind in practice - but it proves you're serious, and if more SMEs were willing to go to extremes, the big brands might finally sit up and listen.

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Image "Lord Sugar" by Toby Jagmohan is licensed under CC BY 2.0

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