Small business commissioner to help firms tackle billions in late payments

31st July, 2015

The government has estimated that small businesses are owed £26bn in late payments and the cost of chasing these debts amounts to millions of pounds a year.

In a recent announcement however, business minister - Anna Soubry has pledged to help smaller firms at the mercy of large businesses, by introducing a small business conciliation service whose primary role will be to tackle late payment disputes.

The small business commissioner will offer mediation services to help small firms recoup the money they are owed, without recourse to costly court disputes and it is hoped that the service will save small businesses millions of pounds a year.

As Be Wiser Business Insurance reported in its Budget 2015 Overview, the issue of late payments was not addressed in George Osborne’s budget delivery in June, so this announcement will come as some relief to small business groups.

Ms Soubry said that the commissioner will:

A culture change

In a survey performed by the Federation of Small Businesses (FSB) last year, more than half of small businesses surveyed had been a victim of late payments in the last 12 months.

Speaking to the Telegraph, medium-sized print business owner - Paul Manning, described how a culture of late payments has become the norm in his industry.

“The culture from small to large businesses is that to delay, ignore, query and drag out paying is ok as everyone does it,” he said.

The knock-on effects of late payments are felt hard by smaller firms, several of which struggle to stay afloat with an insufficient cash-flow.

Damian Gauntlett, a small business owner from Somerset, said: “[Customers] are not interested in negotiating more mutually acceptable terms”.

“It is simply all about them. This didn't use to happen five years ago.”

Companies that fail to make payments on time can now be named and shamed thanks to the Small Business, Enterprise and Employment Act 2015, which has made it compulsory for Britain’s largest companies to report on their payment policies and practices.

It is hoped that the introduction of the small business commissioner will help to put an end to this late-payment culture.

The FSB has welcomed the government’s decision to introduce the conciliation service, but has stressed the need for it to be “properly funded and be high profile”.

It also said the new commissioner should have the power to refer large debtors to the Competition and Markets Authority.

Supply chain bullying

Another issue that the small business commissioner aims to eliminate is the culture of supply-chain bullying, where suppliers are forced to cut their prices in order to retain the business of much larger customers.

It is now increasingly common for companies to demand 60 days payment terms, with some larger companies insisting on four months credit from some UK suppliers.

This poses issues for small and medium sized enterprises (SMEs), who are often afraid to complain to customers for fear of losing their business entirely. Postponed payment can ruin the cash flow of position of suppliers and costs them time and money chasing big debtors.

To further compound this issue, banks are reluctant to provide overdrafts to small firms with large numbers outstanding payments beyond two months.

Providing SMEs with a champion to tackle these issues could prove an effective move, provided of course it carries enough power, resources and credibility.

The Consultation

The Department for Business, Innovation and Skills has launched a consultation on the role of the commissioner.

In the consultation, Anna Soubry reports that small firms are responsible for 48% of UK private sector employment and are vital to economic growth.

She says that she wants the commissioner to bring about a "long-lasting culture change", helping to settle disputes quickly and cheaply, so business owners can “spend the maximum time possible running their business”.

She goes on to explain how she has been impressed with similar services operating in other counties, particularly the Victorian Small Business Commissioner in Australia, which she reports is “having a real impact on the ground,” with more than half of cases handled being successfully resolved at 30% or less of the cost of taking legal action.

Furthermore, more than half of complaints were resolved within one week, and 80% within 12 weeks.

Businesses backed to grow

Ms Soubry said: “The government is backing small businesses to grow and create more jobs and opportunity.”

“Small businesses are owed £26bn in late payments and spend millions more chasing down money they have already earned through hard work. This is simply unacceptable – it limits their growth and productivity, and can put an otherwise successful business at risk.”

“The small business commissioner will tackle the imbalance of bargaining power between small suppliers and large customers, and encourage them to get round the table and sort out disputes at a fraction of the cost of going to court. It will also provide advice, investigate complaints and see where further action is needed to clamp down on unfair practices.”

Ministers have also called on businesses of all sizes to share their experiences with late payments and to share their views on the proposals.