Calls For New Late Payment Legislation

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A survey by the Institute of Directors (IoD) of SME’s across the UK revealed that of the 787 questioned, nearly half have suffered because of late payments during the past six months.
Of these figures, 48% stated they have had recent issues with late payments, and just 1% said that the best way to handle the problem was the complaint handling procedure of the Small Business Commissioner which was introduced last year to tackle unfair payment practices.

Three out of 10 SMEs said “excessively bureaucratic payment system” were to blame for the problem, and more than one-fifth said it was the result of “grossly unfair” terms or conditions used by larger firms.

Executive director of IoD Scotland, David Watt, said it was simply “unacceptable” that so many business struggle to claim the money they are owed. The only way to ensure companies have to pay their invoices on time is through legislation, he added.
“Chasing late payments can have a particularly damaging effect on our SMEs, and in some cases it can be so bad the SME is forced to fold due to a backlog of unpaid invoices,” he said.

“Unfortunately, at the heart of the issue is a power imbalance. Smaller companies are often made to jump through unnecessary hoops to accommodate their larger customers, but don’t want to risk souring the relationship by taking formal action.
“Scotland is a small nation, and SMEs are the lifeblood of our economy. We need them to flourish in order for the economy to grow.”

Due to the recent collapse of Carrilion, the issue has been highlighted, but the IoD said its findings show the difficulty is more widespread than just the construction sector.

Only 20% of IoD members who predominantly run SMEs, support the reporting requirements for large companies introduced last year, however, these have “yet to bed in”, the IoD said.

Ken Lewandowski, an experienced Scottish director and late payment campaigner, said it is a problem “affecting just about every business in the UK in some way”.

“There are 300,000 SMEs in Scotland, and 80 per cent of the business in Scotland is done through our SMEs,” he said. “The act of short and late payments continues to happen simply because those companies who carry out the practice know that there is little their subcontractors can do; they simply can’t afford to take legal action.

“In Germany, there is a 30-day payment deadline, followed by 15 days when interest is due. If there is no payment, the matter is referred to the tax office who can take punitive action against the offending firm.

“The introduction of a small business commissioner will be completely ineffective, and recommendations and guidance won’t make a difference. There is only one solution: the introduction of legislation.”

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