The chief executive of the business organisation that administers the Prompt Payment Code has called for a top-to-bottom culture change when it comes to unfair payment practices.
Just days after the launch of The Journal’s Pay Fair campaign, Philip King, of The Institute of Credit Management (ICM), joined the likes of the Federation of Small Business, the Confederation of British Industry and the British Chambers of Commerce in giving evidence to the House of Commons Public Bill Committee as it considered the Government’s Small Business, Enterprise and Employment Bill.
The ICM, which administers the code on behalf of the Department for Business, Innovation & Skills (BIS), has welcomed the Government’s commitment to strengthening the document, signatories of which agree to pay suppliers on time, give clear guidance to suppliers and encourage good practice.
But Mr King said that the introduction of a mechanism to allow grossly unfair terms to be challenged by business representative organisations should also now be accelerated.
“It is something that we have proposed for some time,” he told the committee. “We accused the Government in the spring of ducking this issue and it is important that we now seize the opportunity of making it happen.”
He added that there was no silver bullet to the issue of late payment, but that a combination of good credit management, greater transparency between customer and supplier, complemented by effective legislation and non-legislative measures, could dramatically reduce both the impact and the frequency of the problem.
“There are many tangible examples where such best practice has achieved notable results in reducing payment times and getting the basics of credit management right is a good starting point, including the agreement of terms and conditions that are acceptable to both parties,” he said.
“It is not always, or only, big businesses that exploit the small; some small businesses behave badly too and that shouldn’t be overlooked. We need a change in culture from top to bottom.”
Mr King welcomed the provision in the Bill - which could come into force before the next general election - requiring big businesses to report on their payment practice.
However, he suggested the focus should be more on policy and practice than on an average payment days number.
“An ‘average’ is unhelpful when a company has numerous suppliers ranging from window cleaners to major corporates,” he said. “A clear statement of a company’s policy, culture and ethical stance towards payment of suppliers will be of greater value.”
Measures requiring banks to provide data to designated credit reference agencies, and for the disclosure of VAT registration information, were also seen as a positive step.
“Anything that helps one business assess the creditworthiness of another in order to facilitate trade is to be welcomed insofar as it supports growth, and mitigates against potential bad debt losses,” Mr King said.
“It needs to be available to support the provision of trade credit as well as finance, and providing credit reference agencies with the data to make better informed ratings and recommendations will be valuable.
“More business finance is provided through trade credit than through bank funding and more information leads to more, and better, decisions.”
Part of this week’s debate centred around the suggestion that the Prompt Payment Code be made mandatory, although various concerns were raised about the feasibility of such a proposal.
The Prompt Payment Code was first established in December 2008 and currently has more than 1,700 signatories, 75 of which are from members of the FTSE100.
Through our Pay Fair campaign, The Journal is encouraging North East companies of all sizes to take a responsible and ethical approach to paying firms within their supply chain.
We are also asking them to sign the Business Ethics Pledge created by the North East Institute of Business Ethics, thereby 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/ .