Debt recovery firm calls for 'opt-out’ late payment fine system

New research suggests average 'micro-SME' is £68,000 in debt, largely due to late payments

Mark Burgess, chief operating officer of Debt Guard
Mark Burgess, chief operating officer of Debt Guard

Compulsory daily interest charges should be introduced to punish businesses that pay their suppliers late, according to a commercial debt recovery firm.

Debt Guard Solicitors, part of the Newcastle-based Irwin Mitchell, suggests firms should be able to opt out of the requirement - but in doing so would risk public criticism.

The calls come after the business analysed Companies House records, revealing 4,192 micro-businesses - those with less than 10 staff - fell into an average of £68,000 of trade debt during the last financial year.

These firms also waited an average of 63 days for payment – over double the standard payment terms.

Debt Guard’s chief operating officer Mark Burgess said: “To combat what is an entrenched late payment culture damaging SMEs’ cash flow, tougher legislative action is required.

“For instance, the existing statutory right to charge late payment interest does not go far enough and should be replaced by a more robust ‘opt-out’ system instead.

“The risk of an enforced legislative financial penalty would help ensure that contracted payment terms are adhered to by big companies rather than undermined.”

According to leading trade bodies, the culture of late payment is worsening in some quarters.

Research by the Institute of Directors revealed two-thirds of SMEs suffer from the problem, while the Federation for Small Businesses has highlighted how one in five small firms has been subjected to ‘supply chain bullying’ from larger clients.

While the voluntary Prompt Payment Code seeks to encourage large businesses to set out clearly defined payment terms, Debt Guard pointed out that only 1,700 UK businesses have signed up to its principles.

The EU Directive on Late Payment, calling for a maximum payment timeframe of 60 days, has also been largely ineffective, the company said, since a loophole allowed for longer payment terms if this was agreed with the supplier.

The Journal is currently in the midst of its Pay Fair campaign, encouraging North East companies of all sizes to take a responsible and ethical approach to paying firms within their supply chain.

We are asking them to sign the Business Ethics Pledge created by the North East Institute of Business Ethics.

Meanwhile, The Small Business, Enterprise & Employment Bill - which includes clauses on tackling late payment - is making its way through Parliament.

However, a proposed amendment to introduce daily late payment interest at 8% above the base rate has been rejected by MPs.

Mr Burgess added: “We would like the House of Lords to put forward an amendment in support of an ‘opt-out’ system on late payment daily interest charges for the House of Commons to consider.

“For those companies that do opt-out, they should be publicly named to dissuade others from following suit.”

Debt Guard Solicitors is an online portal aimed at enabling small businesses and sole traders to chase late payment cost-effectively, with no registration fees or commission taken.

It works in partnership with established organisations including Metro Bank, The Association of International Accountants (AIA) and the Institute of Certified Bookkeepers.

For more information on the North East Institute of Business Ethics and to sign the Business Ethics Pledge, see http://www.nibe.org.uk/ .

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