Do we need more regulation to tackle late payments to SMEs?
Yes – Jordan Marshall is policy development manager at IPSE.
SMEs represent 99.9 per cent of all private sector businesses. Included in this figure are 4.8m self-employed people – the UK’s smallest enterprises.
A report from MPs this week exposed the shoddy practices of some larger companies, which are building late payment practices into their business models. This is an outrageous abuse of market power, and Carillion on repeat. They are effectively using SMEs and contractors as a free line of credit, exploiting the weak bargaining position that micro-businesses often find themselves in.
This is particularly galling because SMEs help larger companies shed risk, driving innovation and freeing them up to focus on core business.
The fate of SMEs is woven into big business payment practices. Late payment often breaches a legal promise. Mandatory 30-day payment periods and automatic fees for late payment are therefore reasonable measures.
The small business commissioner must also be given the power to name and shame repeat offenders. Business-as-usual just leads to further market abuse, and stifles innovation and productivity.
No – Sophie Jarvis is head of government affairs at the Adam Smith Institute.
Cash is king. We all know that, and we know too that companies large and small sometimes go beyond the payment terms of their contracts.
But it is not for the government to decide what maximum or “normal” terms should be – we have healthy credit insurance and debt collections markets for this reason.
It is the government’s job, though, to ensure that contracts are able to be upheld in court, as is the case in the UK. Adding another layer of bureaucracy could result in rising admin fees at larger companies that are then passed onto smaller businesses in other ways.
Payment on credit is a risk that companies make, and keeping up with payments due is a part of reputable business management. To outsource this to the government is to absolve the market of responsibility.
This problem should be left up to the market – if a company pays late, don’t deal with it. If this turns out to be Conservative party policy, the Tories will struggle to call themselves the party for free markets.