A business leader and expert in late payment has welcomed the report from the Federation of Small Businesses (FSB) into the impact of poor payment practice but challenged a proposal that signatories to the Prompt Payment Code (PPC) should be given ‘three strikes’ before being removed from the list.
Philip King, Chief Executive of the Chartered Institute of Credit Management (CICM), says that signatories can already be removed after only one challenge if the complaint is upheld and poor practice has been proven, and that ‘three strikes’ might allow them to abuse the system and their suppliers. It would also, Mr King argues, open a debate as to how a ‘strike’ should be defined.
“The principal rationale behind the current challenge process is to find a positive resolution,” he explains, “and to this end the Prompt Payment Code has been a huge success.
“There is no doubt that the Code needs further support and resource, but we should not confuse strengthening the Code with a suggestion that the Code has so far failed,” he says. “The Code has been working fully as intentioned, challenges have been made and upheld, and payment issues resolved. The Code is also being actively used by best-practice firms in demonstrating their commitment to the supply chain. What is really lacking is wider publicity and support.”
Mr King says that the CICM already works closely with the FSB and agrees with much that is contained within the FSB’s report, ‘Time to act: the economic impact of poor payment practice.’ Mr King feels, however, that a better use of existing mechanisms could have a dramatic impact on reducing the late payment burden:
“The Government has been understandably distracted by events and must now focus more on exploiting the initiatives that are already in place. Where we completely agree with the FSB is that the appointment of the new Small Business Commissioner by Government should be accelerated. We believe that the role of the Commissioner is vital and should include a responsibility to drive the Code and ensure that the Commissioner role complements it.
“We also think that the creation of a dedicated late payment taskforce would be helpful in driving more businesses to sign up to the Code and encouraging suppliers to formally challenge poor payment practice.”
The FSB report claims that existing policy interventions have had no discernible effect on tackling problems around the UK’s poor payment culture in the last five years. Mike Cherry, National Chairman at the FSB, believes the UK now risks having a business culture where it is acceptable not to pay an SME on time.
“Small businesses have to run a tight ship with their cashflow, and as they struggle with increasing business costs on one hand and an uncertain domestic economy on the other. They should not also have to struggle with the stress, time and money required to chase overdue payments from corporate giants.”
Mr King agrees, but says that it is not only larger firms who extend payment terms: “While it is the larger businesses that will attract the media attention, there are many smaller businesses who are also guilty of placing unnecessary pressure on their own supply chain,” he adds.
The CICM administers the PPC on behalf of the Department for Business, Energy and Industrial Strategy.