UK: WHAT TO DO ABOUT BRITAIN'S LATE PAYERS. - Views diverge on the need for legislation on payment times.

Last Updated: 31 Aug 2010

Views diverge on the need for legislation on payment times.

British business holds an unchallenged lead over its European rivals in one aspect of trade: the late payment of debts. According to recent research by Dun and Bradstreet, UK companies settle their debts 49 days, on average, after the agreed date. The French pay up 24 days late, the Germans 19. Smaller British firms 'wait an average of 83 days for payment from the date of invoice,' complains Derek Yarwood of the 22,500-member Forum of Private Business. 'At present there are an estimated £50 billion worth of unpaid commercial debts in this country, and £20 billion of it is overdue. It's a huge problem and it's getting worse.' 'The system is incredibly unfair,' agrees Colin New, professor of manufacturing strategy at Cranfield University. 'Large, usually public companies, which have access to the cheapest possible capital, transfer their debt burden on to small, usually private companies which have difficult access to the most expensive capital.' A fresh approach is required to solve the problem, says New, who favours a 'staggeringly simple' legislative solution. This would be to allow input VAT to be reclaimed or offset only on invoices paid within (say) 30 days of invoice date. An elegant, and intentional, feature of this proposal is that non-compliance would be an infringement of VAT legislation, and monitoring would be done through Customs and Excise. It would therefore not be necessary for a small supplier to confront a major customer.

Customs and Excise rejects New's suggestion as unworkable and unnecessary. 'The small traders cash accounting scheme already permits companies to delay VAT payment until they receive payment,' points out a spokesman. 'Besides, business debts are not our concern.' New's scheme has no more appeal for the Confederation of British Industry. 'It's simply not feasible, it contravenes the EC VAT directive,' says the CBI's Christine Gregory. 'More to the point, CBI members favour a voluntary code of practice and not legislation.' The CBI Prompt Payers Code was picked up by the Government in its Competitiveness White Paper issued in May. This envisages that government departments and agencies will be obliged to comply with the CBI code, and to publicise their arrangements for handling complaints about failure to pay on time. The Government would also like to see a British Standard for prompt payment. 'The main need is to bring about a change in business culture - and hence shorter payment times. We are not convinced that legislation would have this result,' says small firms minister Lord Strathclyde. Opinion about the value of legislation is sharply divided. Yarwood dismisses the CBI's anti-legislation stance. 'It's arrant nonsense.The CBI represents big business, and big business is causing the problem. One way or another, we will have legislation within two years.' The Federation of Small Businesses, which formerly held out for a statutory right to interest on monies overdue, now believes that other solutions should be considered. One such, says FSB's Stephen Alambritas, would be to give the courts greater teeth to pursue late payers.

Tony Westwood, finance director of Leicester-based precision engineers Tooling and Development, rejects any kind of legislative solution: 'It would only put people out of business. The best answer,' he insists, 'is strict house rules - know the people you are dealing with, don't be talked into allowing further credit, and chase debts vociferously.' Don Wills, director of Tonge and Wills Tubes, is similarly dismissive: 'To be honest, firms like this are experiencing and contributing to the problem. The best thing would be for the Government to let us get on with it ourselves.' Leaving businesses to sort out the problem just isn't working, New maintains. He accepts that there are obstacles to his proposed solution. 'But those such as the DTI or Customs and Excise which raise technical difficulties are rather missing the point. I'm not concerned with the exact mechanism but with getting people to think differently about this problem. At the moment, the balance of power lies totally with large businesses. What we need is some-thing which redresses that balance.'.

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