No maximum time period for payment terms
Other proposals to go forward following 'responsible payments' consultation
Further reforms to procurement, funding for smaller businesses, and work with industry bodies and sectors will help reduce late payments - but there will be no maximum legal payment period, business secretary Vince Cable said today.
Cable's remarks are part of the official government response to the Building a Responsible Payment Culture consultation, published yesterday.
"We agree with respondents that more can be done to make the public sector a beacon of best practice on prompt payment," he said.
More broadly, Cable indicated work with private sector bodies and associations to both improve credit availability for businesses, strengthen the much-criticised Prompt Payment Code, and increase transparency around payment practices.
"We will work with the Institute for Credit Management and businesses to consider how the Prompt Payment Code can be strengthened. This will include looking at what further action we can take to increase awareness of the code and encourage more businesses to sign up, building on last year's work with FTSE 350 companies," he said.
"We will be looking in more detail at various proposals made by respondents to increase the accountability of signatories. We will also be working with the Institute for Credit Management to publicise more examples of good payment practice. We will not however be further pursuing the possibility of an upper tier of the code, which received only limited support from respondents."
In the public sector, the government was already following up proposals, such as a requirement that 30-day terms are passed down all procurement supply chains, and that authorities report publicly and transparently on their own payment practices. Legislation is expected later this year, Cable said, but even further reforms may be considered that streamline procurement and payments, such as e-invoicing.
However, the government does not intend to enforce a maximum payment period "at this time", he continued: "We are persuaded by the limited support the proposal received from respondents and the strength of the arguments advanced against it, notably the extent to which accepted payment practice varies across the economy.
"We will instead be working with industry bodies and business stakeholders to promote sector-based approaches to the development of advice and codes of best practice. These will build on the example of recent good progress made in the construction sector."
Phil Orford, chief executive of the Forum of Private Business (FPB), said the government's steering away from measures that "over-simplify" private sector relationships was helpful - for instance by not introducing a maximum payment time.
"The Forum is also pleased the government is open to reintroducing reporting requirements for larger companies, creating greater transparency and highlighting good and bad payment practice. Finally, strengthening the Mystery Shopper scheme, together with further measures on e-invoicing in the public sector, are excellent steps forward," he said.
However, Orford said the government had ducked a crucial aspect of the issue: the obligation under EU late payment legislation to put in place a mechanism that allows businesses to challenge unfair terms while remaining anonymous.
"The definition of 'grossly unfair' is hard to pin down, but being able to challenge it would create legal precedents to help other companies," he said.
John Allan (pictured, left), national chairman of the Federation of Small Businesses (FSB), noted that the late-payments culture damages growth as well as job creation.
"A key test will be whether the big companies who sign up to the Prompt Payment Code actually now start to pay within 60 days, something they should be doing under the existing EU directive," Allan said.
"Whether these measures go far enough without calling for a statutory code will be determined by how big companies respond to today's announcement and change their culture. Small businesses can no longer be expected to lend interest-free to large businesses."
Allan said that large businesses must be required to explain their payment terms clearly and take their responsibility to pay promptly more seriously. "If those terms exceed 60 days, they must explain why. No longer can small businesses be the poor relation in the payment chain. We need to see more of the detail in today's announcement because small businesses need tough action from the government on late payment," he said.
Eddie Pacey (pictured, right), founder and managing director of EP Credit Management and Consultancy, said he applauded any initiative that combats late payment.
"However, there is a world of difference between adding one's name to a list and actually committing to prompt payment," he said.
He added that the Prompt Payment Code may have only a small effect anyway on what has been a perennial problem for SMBs. "To be frank, this has been the case since the onset of trade on open credit terms. It really is down to companies to ensure they have the right approach to receivables management.
"Too many businesses do not employ specialist staff to manage client payment. It's a false economy; having someone who ensures payment to terms and manages disputes is critical to cashflow management," said Pacey.