New Small Business Commissioner chasing £26bn

August 3, 2015

It would be easy to assume that when businesses supply goods and services to other businesses that there would be few problems with late payment of invoices. However, any small to medium business owner will know this is not the case; it is estimated that small firms are owed more than £26bn in late payments. The cost of chasing these debts can also be astronomical, from the staff time needed to resend invoices, chase payment, make phone calls and even refer on to a debt recovery agency. The worst perpetrators are in fact large businesses who can already impose crippling payment terms; 60 days and up to four month terms are becoming increasingly common. Coupled with the practice of deliberate late payment this can seriously affect the cash flow of a small firm and in severe cases push them out of business.

The Late Payment of Commercial Debt Acts have allowed provision for recovering commercial debt and for adding interest to any overdue payments but small firms can be reluctant to enforce these provisions, particularly when working with large companies, whose business they desperately need to keep.

To address these issues of ‘supply-chain bullying’ and consistent late payment the government has announced the appointment of a new Small Business Commissioner (SBC), whose role will include ensuring that the imbalance between large, multi-national corporations and small to medium enterprises (SME) is addressed. Key elements of their role will be to:

  • Be a point of first contact for small businesses and provide advice and support on how to avoid disputes and how to resolve them
  • Offer access to mediation services to sort out issues quickly and affordably, ‘at a fraction of the cost of going to court’
  • Investigate complaints over unfair business practices and regularly report its findings

They are not a replacement for a debt recovery company but they will be invaluable in helping to resolve disputed payments.

This is a good move for small businesses although enforcement legislation might solve the problem more easily. The concept of a Small Business Commissioner is based on a successful scheme already operating in Australia, where more than half the cases referred to the Victoria state Business Commissioner, were resolved and at at least 30% less than the cost of legal action. With this appointment the government is recognising the role and value of the SME sector which accounts for nearly half of private sector employment and the need to keep these businesses operating at full capacity and providing them with the support to grow and develop.

We would also advocate that you ensure your debts do not become significantly overdue. It is important to have system in place to ensure that invoices are paid on time. Making sure you have a clear, consistently applied and quick credit control procedure will help in this process. Once your process is exhausted, our recommendation would be that you refer debts on to a debt recovery agency at around 60 days. Remember interest and the costs of recovery can usually be added to your customer’s bill meaning that in effect this process costs you nothing. If your customers are disputing a debt, then a referral to the SBC may be the best course of action. They will attempt to get all parties to meet to try and reach a resolution of any dispute. Do bear in mind that if an agreement is reached and you still do not receive the promised funds that a debt recovery company could then be used to chase these debts for you.

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