Late payment won’t be fixed through new laws

Blog Debt

The vast majority of small businesses do not believe that the new payment practice laws will solve the late payment crisis and that they could, in fact, have a detrimental effect thanks to the unintended consequences of the move.

A new study suggests that 74 per cent of small and medium-sized enterprises (SMEs) do not believe that the recent introduction of the ‘Duty to Report’ measures will have an impact on late payments and could even deepen the crisis.

The study was conducted as SMEs face an estimated £266bn of turnover locked up in late payments, where almost a quarter admitted they usually receive payments for invoices late.

Duty to Report guidelines were brought in to force large businesses to report publicly on how they pay small businesses, including the average time they take to pay suppliers. Failure to report carries a risk of criminal proceedings.

However, critics believe that an unintended consequence of the new rules is that big firms are likely to respond by negotiating longer payment terms with suppliers to move the goalposts and create the illusion that they are paying on time.

They believe that this will happen because most small firms are poorly placed to push back against corporates that want to extend their terms, possibly because most do not even know that the new rules are in place.

As one of the report’s authors commented, many SMEs are dependent on contracts from large customers, so would be unwilling to ‘rock the boat’ when it comes to renegotiation. He added that it would be better if the new Government aimed to support new ways in which the late payment problem could be solved, including trough alternative finance platforms.