The Federation of Small Businesses in the North East has welcomed comments by Lord Sugar, highlighting the “crippling” effect of late payment and calling for “harsh but fair” penalties.
During a second reading debate on the Small Business, Enterprise and Employment Bill, the star of BBC One’s The Apprentice told peers that late payers should automatically have to pay interest on bills paid to suppliers.
“It’s only then we’ll see business suddenly wake up and start paying on time - when failure to do so will hit their bottom line,” he said.
The comments come as The Journal’s Pay Fair campaign continues to gather momentum, attracting the backing of North East firms of all sizes, keen to put ethics and responsible behaviour at the heart of their business practices.
The Bill already includes provisions to ensure small suppliers are paid on time by larger firms.
But Lord Sugar said they would have no real impact and did not go far enough in offering “practical, common sense” solutions to small businesses.
“We need the Government to be tougher in showing companies that late payment is not an acceptable part of our business culture,” he added.
It is estimated that one in five business failures comes down to bills being paid late.
Lord Sugar also suggested that the problem was becoming “increasingly common”, the “culprits” often being large organisations working on “lucrative” Government contracts,
While there were good intentions behind the Bill, these needed to be translated into real change on the shopfloor or the bank balances of small businesses.
“It only takes a few late payments to bring a small business close to the edge,” Lord Sugar added.
“This Bill will do very little to help solve this problem. It offers no incentive for companies to make payments on time or any deterrence for paying late.
“The onus will still be on the small businesses, who are being short changed, to chase for payment.”
Speaking after the debate, Ted Salmon, FSB North East regional chairman, said: “Lord Sugar is right to highlight the huge problem late payment causes small businesses.
“We have seen the cost of late payments to small businesses rise from £18bn in 2008 to £46bn now. More needs to be done to help small businesses fight against the scourge of late payment.
“The idea of charging interest on late payments is already possible under existing legislation. However, doing this automatically may be one way of toughening up the legislation to help more small businesses get paid on time.”
He added that too many small businesses were too afraid to speak out about the impact of late payment, especially if they feared losing a contract.
The FSB therefore supported the idea of shifting the onus onto late payers to pay on time, rather than on to small businesses to chase payment.
“We need to see a culture shift in late payment where it becomes the norm to pay on time,” Mr Salmon said.
“There are a number of big businesses that already do this and we’d like to see more doing the same.
“Small businesses need to be able to fight back against late payers to ensure they get paid in time.
“Getting this right will help small businesses drive the continuing recovery of the North East economy.”
Through the Pay Fair campaign, The Journal is encouraging 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/