One of the accusations repeatedly levied against government legislation on late payment is that it “lacks teeth” – but how can new laws be made to have an impact, without forcing SMEs to charge fees and interest on their overdue invoices?
After all, anyone who has ever been in business on their own knows it is sometimes necessary to extend an invoice deadline in light of a customer’s own cash flow problems, and in recognition of their usual promptness in paying.
Even a new customer who fails to pay on time might get the benefit of the doubt as a one-off, or to avoid any ill will at the start of what you hope will be a long-term working relationship.
So, if we don’t want to force small-business owners into charging interest and fees to their clients, and many SME owners who would like to do so feel they are unable due to the reputational impact it might have, what are the possible solutions?
The recently launched IPSE Manifesto sets out some of the options, with specific thought given to independent professionals and the self-employed, the two groups IPSE represent.
For example, IPSE suggest that businesses that sign up to the voluntary Prompt Payment Code should pay a higher-than-statutory rate of interest by default on any invoices that go overdue, as a kind of extra penalty for breaching the Code.
Those that repeatedly fail to meet the terms of the Code should be named and shamed by the government on a publicly accessible database, they add.
When freelancers are left unpaid – especially if payment is more than 30 days overdue – IPSE argue in favour of a much more simplified legal structure for reclaiming money owed to them.
“As a last resort, ensure strong statutory sanctions for late payers,” the Manifesto demands. “No business should face being paid more than 30 days late.”