The payments industry awaits with interest a response from the UK government to the open consultation exercise regarding late payments.
Predictably, there are call from small businesses for action. They say that they are suffering disproportionately because of the power dynamics of late payments. In short, they want to see the government legislate to combat this.
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Late payments: hammer cashflow and prevent investment
The arguments are well rehearsed. Late payments affect cashflow and the ability to invest. The government says that it has been proactive in attempting to stamp out the worst kind of poor payment practices within the business community. The Payment Practices Reporting duty aims to increase transparency in payment behaviour to drive improvements in payment practices. It also aims to assist suppliers by providing access to the information they need to make informed decisions about which businesses they trade with, negotiate fairer terms, and challenge large business customers to improve their payment practices.
To date, the government argument has been that legislation alone will not address small business concerns. Instead, government has sought to encourage a culture change in payment practices and how businesses deal with each other. It says that it wants to continue to help to build that culture of prompt payment between companies and challenge UK businesses to improve their practices and stand by their smaller business partners.
The need to equalise the power dynamics of late payments
Anthony Venus, Chief Strategy and Product Office at Quadient AR by YayPay is calling for tougher action. He tells EPI: “As the open consultation on late payments comes to an end, the end result cannot be half-measures. The regulations must be extended beyond the current expiry date, but this is also a great opportunity to ensure they are effectively combatting late payments. For instance, even if the Government does not support fines, there are many other ways to equalise the power dynamics at the heart of the issue.
“First, UK law already supports overdue fees of Bank of England base rates plus 8%. Legislating for their inclusion in all contracts would lay out organisations’ obligations and encourage businesses to meet them. Second, the Government must make the currently-voluntary Prompt Payment Code a central part of expected business ethics.
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By GlobalData“For instance, if only companies that meet the Prompt Payment Code can bid for Government contracts, there will be a huge incentive to change behaviour. Finally, the Government should encourage technologies such as automation that make it easier to pay or claim payments on time. Tax incentives to encourage adoption will give small businesses many more tools at their disposal.
“The Government needs to apply the carrot and the stick to both sides of the argument. But if it can’t adopt bold proposals, the small and medium businesses that are crucial to our economy will keep suffering.”
