ACCA warns against heavy-handedness in tackling late payment

Accountancy body identifies 13 deviations from normal payment practice, which each need to be treated differently

Ewan Willars, ACCA's director of policy
Ewan Willars, ACCA's director of policy

A nuanced approach is required to tackle the practice of late payment among the UK’s smallest businesses, a new global study has found.

The report from ACCA (the Association of Chartered Certified Accountants) shows how businesses with fewer than 50 employees are typically twice as likely as large corporates to report problems in this area. When difficulties strike, such small firms become less likely to increase headcount.

But ACCA, which supports 170,000 members and 436,000 students in 180 countries pointed out that incidents of late payment vary significantly in nature.

The groups report noted that a large share of business-to-business trade involves the use of trade credit, where rather than payment being made at the time when goods or services are delivered, it is delayed until a later date, usually agreed in advance by the relevant parties.

Given the important role such practices play in economic growth, ACCA says, policymakers would be advised to avoid any hardline, one-size-fits all approaches when it comes to legislation.

ACCA director of policy Ewan Willars said: “Late payment is often understood as a solely negative aspect in business, but this is not necessarily the case. It can also be a useful tool for business growth.

“Only when this complexity is understood can appropriate responses will developed to address the aspects of late payment which do impact negatively on businesses.

“ACCA has identified 13 types of deviations from prompt payment, each of which calls for a different approach from businesses and policymakers. Failing to distinguish between them will lead to poor policies that run the risk of doing more harm than good.”

The report also includes a set of objectives for Government intervention in the trade credit market, designed to deal with the negative aspects of late payment without compromising economic growth.

These include:

* ‘Dampening’ the systemic impact of late payment on the economy by encouraging ‘deep pockets’ - such as financial services firms - with a stake in the entire supply chain;

* Ensuring the legal and policy frameworks around incorporation, financing, contracts and insolvency are aligned to deal with different aspects of late payment promptly and in a consistent manner;

* Encouraging trade credit by giving suppliers a minimum level of protection against supplier dilution;

* Ensuring businesses can look forward to a similar level of discretion in negotiating credit terms with their customers, regardless of whether they are new or repeat suppliers, and

* Encouraging the development of financial markets so businesses have quick access to alternative financing options in response to changing terms of credit or unexpected late payment.

The report - the first of a planned trilogy to be published by ACCA on the issue of late payment - comes as The Journal’s Pay Fair campaign enters its fourth month, encouraging North East companies to take a responsible and ethical approach to paying firms within their supply chain.

We are asking firms to sign the Business Ethics Pledge created by the North East Institute of Business Ethics, agreeing to join with others to discuss the value of business ethics and to work with each other to transform their working environments for the better.

For more information, see http://www.nibe.org.uk/

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