Legislation can only be one part of the solution to SME late payment problem

Oxygen Finance’s response to new government initiative

Business secretary, Sajid Javid, today pledged to tackle the problem of late payment of SMEs by announcing a new enterprise bill, which will introduce a small business conciliation service. The bill will be announced formally in the Queen’s speech at the state opening of parliament on 27 May. The new body will help settle disputes between small and large businesses and is designed to help businesses “avoid expensive legal costs and maintain business relationships by reaching mutually satisfactory agreements”.

Mr Javid explained: “There’s a situation familiar to small business owners up and down the country. A letter turns up from a larger customer changing payment terms, or charging them to remain a supplier and in some cases even deducting that charge on the spot against payment owed. This pattern of behaviour is an outrage. It’s bullying – pure and simple.”

Oxygen Finance believes that Mr Javid is right to focus on the subject of late payment but that government intervention will only go part of the way to solving the issue. The real progress, according to Oxygen Finance, will come from a shift in focus from legislation to incentivisation.

Roberto Moretti, CEO, Oxygen Finance Ltd, comments: “The business pages of the UK media continue to be filled with stories of late payment and how SMEs in particular are negatively affected by the poor payment practices of large buyers.  I have met a huge number of large corporations and public sector bodies in recent months and can honestly say that – with few exceptions – I do not believe they are paying suppliers late on purpose.  I’m therefore not sure whether additional legislation will have the desired effect of driving more liquidity into our SME community.  Suppliers already have recourse to legislation which entitles them to late payment penalties, however very few choose to go down this route for fear of impacting upon valued relationships and losing future business opportunities.”

“In my view, we need to provide large buyers with the tools needed to allow them to prioritise the focus on this area”, says Roberto Moretti.  “This involves greater analytics on a real-time basis to highlight problem areas and help processes to become ‘unblocked’ as well as aligning the overall business objectives with the buyer’s CSR agenda, areas which are not always in tandem.  The efficiency created in this way will only manifest itself where the buyer is incentivised to do so.”

He continues: “For this reason, I believe that running an early payment programme with supplier rebates alongside a wider ‘prompt payment’ initiative will deliver the desired outcome and create a better payment culture. This approach, which ensures that all suppliers are paid to contracted terms where they are not participating in the early payment programme, is the only way to drive this behavioural change.”