Call For SMEs To Sue Anonymously Over Late Payment of Bills

The Forum of Private Business (FPB), which represents 18,000 firms, has suggested that smaller companies should be allowed to sue bigger firms anonymously if they fail to settle their bills on time. The FPB argues that small and medium-sized enterprises (SMEs) are often frightened to sue bigger firms, for fear of losing valuable contracts. The call comes after Sage Pay revealed that SMEs are owed £55bn in unpaid invoices, a rise of more than 50% since last summer.

Alexander Jackman, of the FPB, said: “Late payment is a huge burden on small businesses and it is growing. While we welcome the ongoing attempts to tackle this issue, the Government must now fulfil its obligation under the EU directive to introduce a mechanism which would offer anonymity to firms challenging unfair practices.” Under the EU’s Late Payment Directive, member states have an obligation to put in place a mechanism that allows business groups to represent their members in challenging ‘lengthy and lengthening’ payment terms. This should mean the firms themselves are not named and do not risk losing contracts. Nothing of this sort is in place in the UK. The Government has, however, urged large companies to sign up to the Institute of Credit Management’s Prompt Payment Code . Many SMEs have complained, though, that the Code has proved to be toothless. The initiative had threatened to name and shame FTSE350 companies who refused to sign up to the Code but less than half of them did. If you are experiencing problems with persistent late payment or would like to discuss supplier payment terms generally contact the Corporate and Commercial team at IBB.

Momentum building

The EU UK Late Payment Campaign itself launched last week. The Campaign estimates that 3.7% of total turnover in the UK is lost to late payment, with average payment duration at 41 days. This week the Builders Merchants Federation has backed subcontractors who are calling to improve the late payment culture in the construction industry. It has called on the Government to confront companies that take up to 120 days to pay bills. The Labour MP Debbie Abrahams, who launched the Be Fair, Pay on Time campaign in 2011, continues to lobby business, parliament and media. She recently argued: “Ultimately this is an issue for the leaders of larger companies to address because a late payment culture is set at board level and won’t change until we establish that late payment, finding excuses to pay late, or arbitrarily extending pre-agreed payment terms, is as unacceptable as tax evasion.”

Industry stance

Strict laws have existed in Scandinavia for nearly 20 years. Businesses that fail to pay on time are added to a blacklist, which in turn serves to dissuade customers from dealing with them in the future. This list is widely referenced by businesses and individuals alike and is commonly cited as the principle reason for late payment being a relatively minor issue in northern Europe. The Confederation of British Industry (CBI), which represents mainly larger companies, has recognised the issue and has asked the Government to consider forcing businesses to publish how quickly they pay their suppliers. However, it has rejected a suggested law that forces companies to pay suppliers within a maximum of 60 days. “Supply chains should be collaborative, not confrontational – so heavy-handed regulation won’t work. Suggestions such as mandatory maximum payment terms, introducing an enforcement agency or blacklisting of suppliers all fall into this category and should be rejected,” it said. Charlie Mullins, CEO of Pimlico Plumbers, believes that change may be slow as firms are sticking to the cash management strategies that got them through the recession. “But that shouldn’t stop business owners getting what they are owed. Don’t be shy about chasing money. If you’ve done a good job, you’re entitled to it!” he concludes.

For advice on corporate and commercial matters call the Corporate and Commercial team at IBB. IBB provides West London’s corporate community, from European HQs of multinationals to UK plcs to large privately-owned businesses, with expert legal advice. Our experienced Corporate and Commercial team provides a wide range of transactional services. For advice, contact a member of the team, call us on 01895 207973 or email corporate@ibblaw.co.uk.