Why fining late payers just won't work

The UK Business Secretary has confirmed that he has ordered his officials to look at whether Britain should introduce a fine for late payments, as he prepares for an autumn offensive on the issue, writes Charles Wilson, the chief executive of debt recovery firm Lovetts.

However Vince Cable's plan to slap a late payment levy on businesses who fail to pay their suppliers on time is well-intentioned but won't work.

I fear this is just another piece of politics without any real understanding of why measures such as these have failed previously. Time and resource would be better spent educating smaller businesses on the best ways to protect their cash flow and limit their exposure to late payment.

Essentially, what Mr Cable has suggested is another form of compensation which it is likely only local authorities will conform to as they will be accountable more publicly. History has shown - with previous late payment compensation legislation - that no supplier will want to enforce the levy against its customer. There's no point stating that failure to pay will be illegal because that will still have to be enforced in the civil courts, and that's where most suppliers stop, for obvious reasons.

And the fact is we've seen very little real change in the 15 years since the Late Payment legislation (1998). Moreover, in the new 'stop red tape' culture being promoted by the government it will be interesting to see how they think they can make this [new approach] stick.

Ultimately, the government should be focusing on educating businesses to get the basics right in terms of their business contracts and the clear ground rules they need to put in place with suppliers, so they know from the outset that late payment is not an option.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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