Late payment tsar looks far from convincing to contractors

Just when you think the government has stopped tinkering with small firms’ payment terms, it proclaims a Late Payment Tsar - at least that's the name that’s stuck, instead of its official title 'Small Business Commissioner' or its previous one ‘Small Business Conciliation Service,’ writes Adam Home of debt recovery specialist Safe Collections.

‘Quickly and cheaply’

Aside from the unceremonious re-brand, this ‘tsar’ is put forward in a consultation document from the Department for Business, Innovation & Skills, introduced with a foreword from small business minister Anna Soubry.

The minister, who has never run a business herself unlike some of her colleagues, writes: “I want the Commissioner to help small businesses settle disputes quickly and cheaply.”

But is being fast and cheap something that should be the main aim of a new government service? In the printing industry there is a piece of common wisdom: customers want their printing to be fast, cheap and good, but you can only have two of those things without compromising on the third.

A fast, cheap conciliation service to resolve late payments without going to court might sound appealing, but as the concerns expressed within a few days of the tsar’s proclamation indicate, businesses are already expecting the tsar to lack teeth. The concern is that the Small Business Commissioner will actually have little power to enforce any kind of action; let alone those it can do at speed, and for a pittance.

Powers, jurisdiction and remit

Without giving the tsar real powers, we’d be left with a go-between whose mediation skills alone are unlikely to be enough to force the big firms to pay any sooner than they would choose to do so anyway.

On top of this, we’d ask the question (having looked at the consultation) of whether this is a Late Payment Tsar for the UK, or just for England? Devolution is still high on the agenda, but as far as most businesses are concerned, the UK is still a common market - nobody is treating Hadrian's Wall or Offa's Dyke as the limit of their marketplace.

But we live at a time when powers are being handed back to both Scotland and Wales, raising the question of how the tsar might engage in cross-border transactions - further compounding the question of whether the service would work at all.

However is the tsar needed in the first place? Whatever name small firms end up calling it by, it’s pretty clear that it’s going to act as a mediator, providing out-of-pocket traders with advice as a first point of contact, and intervening in disputes before they ever reach court.

My initial feeling is almost one of depression, because the talk that comes out of the government on issues relating to payment practices and late payment is as meaningless as it is relentless.

For a start, the 'advice' element of the SBC scheme just doesn't seem necessary. We had Business Link way back in the early 1990s, and Directgov from 2004; both have since been incorporated into GOV.UK. More positively, having a single site for all government departments, announcements and guidance has been a huge step forward in terms of the available online provisions.

How much will we all pay for the payment tsar?

Introducing a separate Small Business Commissioner's Office, as it would likely be called by officials, feels like a step backwards towards greater fragmentation. Plus, will there be enough in the budget to even deliver the promised services?

More worrying still is the prospect that the mediation service might be seen as part of the UK legal system, meaning its funding could be diverted from civil courts' budgets - potentially setting back civil litigation and creating even greater delays in an already strained system.

So what's the cost? The successful appointment of a Late Payment Tsar will depend on how the service is designed, and how much it will cost - both to fund the SBC office itself, and in terms of any fees payable for mediation and dispute resolution.

It will also be judged against its predecessors. We already have all sorts of harebrained schemes to deal with the blight of late payment, from the all but meaningless Prompt Payment Code (entirely voluntary) to the creditor-punishing Supply Chain Finance Scheme (get paid late, and pay interest for the privilege). More worthwhile, contractors tell us, is the EU Late Payment Directive.

Actually, the latter is the single best instrument to tackle overdue invoices. But unfortunately John Allan, national chairman for the Federation of Small Businesses, says the directive is “simply being ignored” by many large and multinational companies.

He’s also said: "Late payment culture in a company is set at board level. It's something that CEOs and board members in big businesses must take responsibility for and put at the top of their agendas. Big businesses must respect the supply chain and stop using smaller businesses a as credit line by delaying payments and applying bullying tactics."

Strength in numbers

Right on, John - we totally agree. But the big brand bully boys won't make that change unless they have to - after all, they have shareholders to keep happy.

So what's the answer to late payment? Well it doesn’t seem to be the tsar -  it’s still the EU Late Payment Directive. Remember, this has the force of law – it’s an enacted legal instrument to enforce agreed payment terms (or default terms if you haven't agreed anything else). It can be used by you to charge penalties and interest on what you are owed as an out-of-pocket commercial supplier.

If contractors and other small companies begin using the directive en masse, the repercussions will be felt throughout their supply chains, all the way to the very top. However this ripple effect is only likely to begin close to one end of the chain, rather than somewhere in the middle. So for once, small businesses do actually have the power to force genuine change - but only if enough of them are brave enough to take action in the first place.

Profile picture for user Adam Home

Written by Adam Home

Adam Home is Managing Director of UK & International Debt Recovery Specialists Safe Collections. The company, founded in 1984, has more than three decades of experience in recovering unpaid invoices and contractual arrears anywhere in the world.
Printer Friendly, PDF & Email

Contractor's Question

If you have a question about contracting please feel free to ask us!

Ask a question

Sign up to our newsletter

Receive weekly contractor news, advice and updates.

Every sign up will be entered into a draw to WIN £100 Amazon Vouchers.

* indicates required