Overcoming the problem of late payments to SMEs by their larger customers could not only help out small suppliers; it could also have widespread implications for the economy as a whole.
In a foreword to a government consultation on ‘building a responsible payment culture’ published earlier this year, business secretary Vince Cable argued that “payment goes right to the heart of corporate responsibility”.
He added that the actions of one company in a B2B supply chain can have consequences for their suppliers, including generating additional costs that might otherwise be avoided.
And avoiding those costs can have positive consequences in its own right.
“When I speak to small businesses, late payment and long payment terms are almost always amongst their top concerns,” Mr Cable wrote in his foreword.
“There is a culture of late payment which is preventing business, small businesses especially, from investing in growth and contributing to economic recovery.”
He pointed out the legislative tools already in place to protect against overdue payments – such as the right to charge interest at a rate eight percentage points above the Bank of England reference rate.
But with SMEs often valuing their customer relationships higher than their actual customer payments, many are reluctant to exercise this right for fear of losing an immediate customer, and putting off others.
The consultation recognises this conflict of interests, and proposes that compensation, rather than being paid to the creditor, could be paid to the government instead, effectively penalising the debtor without appearing greedy on the part of the creditor.
However, this leaves SMEs in the position of seeing their late-payers forced to pay penalties directly to a government agency, without the out-of-pocket creditor feeling the financial benefit – which is hardly likely to seem fair to anyone except the government.