'We've been fighting for a law to discourage late payers for 10 years,' says Nicholas Goulding, head of policy for the 25,000-member Forum of Private Business. 'Up to now, governments have paid lip service to the idea. This Bill changes all that.' The Bill is the Late Payment of Commercial Debts Bill, which receives royal assent this month. When it becomes law, the 99% of UK businesses that employ less than 50 people will have the right to charge a hefty rate of interest when the 1% of larger businesses sit on their invoices.
Unless an existing contract states otherwise, invoices will have to be settled in 30 days, or the creditor will be able to levy interest at 8% over the Bank of England base rate. For habitually late payers the penalties should act as a deterrent.
According to a 1996 survey by Grant Thornton, the swiftness of payment across Europe varies considerably from nation to nation. The Finns settle their invoices in 24 days, the Danes in 35, the Swedes in 37, and the Germans in 38. But here in Blighty, our creditors must wait almost a fortnight longer - the average payment period is 50 days. Still worse, a NatWest survey of small businesses found that one in 10 of them had 30% of their invoices unpaid after three months.
Critics of the Bill worry it changes nothing. 'I applaud the principle but, in reality, businesses will continue to adopt the practices they have always had,' says Nick Blackwell, commercial director of Midland Bank's factoring arm, Griffin Credit Services. Blackwell doubts whether small firms will risk damaging relationships with customers by pursuing what he terms 'punitive' interest payments. In addition, he says, there is no practical way to tell which businesses have more than 50 employees.
Doubts also come from the small business community. 'We are sceptical,' says a spokesperson for the Federation of Small Businesses. 'Most people won't impose interest and, on the Continent, legislation hasn't made much difference.' In fact, some European late payment legislation has failed.
Italy's 84-day average payment wait makes British bought ledger departments seem positively philanthropic. The Federation aims to use the Bill to raise awareness about the effects of late payment. It will publish its first league table of the UK's worst payers, compiled by Dun & Bradstreet, in the autumn and believes this naming and shaming exercise will have more impact than the legislation.
At the Forum of Private Business, Goulding argues that the Bill has teeth. 'We are talking about companies that wilfully breach contractual obligations. Frankly, there has been nothing we could do to stop it. This will not suddenly cure the problem, but the effect of legislation in Scandinavia shows that, over time, it does work.'
In the first two years small businesses will only be entitled to claim interest from large businesses. Then the performance of small businesses will be open to scrutiny. After four years any business will be able to punish its late payers. Ironically, government departments, which are overwhelmingly served by companies with more than 50 employees, will stand to gain from this phasing in. 'This Government really ought to be setting a lead,' says Goulding. 'But the Bill certainly sends a message that no government has sent before.'.