Avoiding the late payment precipice—the Enterprise (Bill) strikes back

In amongst the usual pomp and circumstance of the Queen’s Speech last week, some fundamental changes to our commercial landscape are afoot. One such potential change is proposed under the Enterprise Bill: the Small Business Conciliation Service (‘SBCS’).

The government hopes this service will tackle the ever-increasing problem of late payment without the need for court action.

Late payment is one of the biggest issues confronting small businesses today, who rely on their cash flow to support growth and operations. If a business does not pay a supplier on time this may have a critical, if not fatal, impact on the enterprise.

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The powers that be have done their research and will base the proposed SBCS on the already successful model used in Australia: the Australian Small Business Commission. The Australian Commission’s raison d'être is to “avoid expensive court proceedings and maintain business relationships by reaching mutually satisfactory agreements”, mainly via mediation.

As well as the many advantages to small firms in trading with the big boys (financial being one) there are numerous pitfalls, as identified by the new Secretary of State for Business Innovation and Skills, Sajid Javid, who said:

In 2008, late payment alone cost British businesses £19 billion. This year, that’s set to exceed £40 billion. The average amount owed to a small business is more than £30,000. You know as well as I what figures like that can do to the cash flow of small businesses – it’s enough to force a company into insolvency.”

When it comes to payment, big businesses have long had their smaller providers up against the wall. Introducing a small business conciliation service to resolve disputes should go a long way in helping small enterprises get the payment they deserve without lengthy and expensive court action.

Or will it?

Time will tell as to how effective or not this new body will be. Will it carry authority or just end up being a bureaucratic toothless tiger? Does it solve the issue of small companies wanting to stay ‘in’ with the big companies because they are contractually obliged to do so? Or will the fear of losing the contract or business relationship prove too strong?

The exact mechanics of the SBCS are yet to be revealed. Critics have suggested that the service will only carry teeth if it has the ability to impose sanctions on regular offenders, which are published along with the reason(s) for the sanction.

The government also needs to help small businesses use the law already available to them to claim late payment compensation and interest. Claims for debts going back six years can be made under the Late Payment law. Recoverable legal costs should be more realistic and would further discourage late payers from risking court claims.

Late paying businesses need to be persuaded that it is in their financial interests to pay on time.

In his first speech since being appointed Business Secretary, Javid described our small businesses as “Britain’s engine room. The success of our whole economy is built on the hard work and determination of the people who run and work for them”. But in order to guarantee the success of any mediatory body in dealing with disputes, the service and its users must be provided with the right tools.

So what do you think? How useful do you think the SBCS will be for the SME? Do let us have your thoughts below.