A cross-party parliamentary inquiry, that I convened and chaired about how to tackle the issue of late payment to small and medium sized businesses has published our report with 11 key recommendations – see below. The report follows an oral evidence session in Parliament in April 2013. The full report can be read here
A recurring theme in the evidence our panel was given is that, ultimately, the issue is one of leadership. Until top CEOs, and their executive board members, make a decision to act ethically in business, and treat our small and medium sized businesses fairly, this problem will persist.
The public has grown tired of hearing about huge, greed driven, pay packets, pay-offs for failure and tax evasion; but allowing a culture of late payment to persist unchallenged is another board-level decision that directly effects ordinary, hardworking, people across the country.
Incidentally, shareholders also have a responsibility to hold their executives to account. Appearing at the inquiry took courage from our contributors. The top FTSE companies have been under scrutiny in recent years and those we invited could have chosen to ignore our request to give evidence but they did appear and we are grateful for their candour.
But special thanks should go to the SME owners who really demonstrated the damaging impact late payment has on our businesses not to mention the emotional impact on the owners and employees themselves.
I am also grateful to my colleagues from across the political spectrum for their participation on the Inquiry panel and demonstrating that, although we may have different political views, we can work together to find a solution to this persistent problem.
The other members of the MPs’ panel were: Mike Crockart, Liberal Democrat MP for Edinburgh West; Alex Cunningham Labour MP for Stockton North; Caroline Dineage, Conservative MP for Gosport; Rt Hon Michael Meacher Labour MP for Oldham West and Royton; Toby Perkins Labour MP for Chesterfield; and Robin Walker Conservative MP for Worcester.
Recommendation 1: The Government should promote the adoption of ‘good practice’ guidance for large companies in managing supply chains, including publishing performance data relating to payment-on-time to suppliers in audited annual accounts.
Recommendation 2: The Government should encourage businesses to publish information for investors and shareholders defining their support of, and compliance with, ethical business practice, for example, signatories of FTSE4Good Index Series or Ethical Trading Initiative.
Recommendation 3: The Government should support SMEs avoid late payments through free, high-quality financial management advice and/or training, for example, through trade associations, SME organisations, or local SME advisors.
Recommendation 4: The Government should work with SMEs and support the establishment or development of trade associations to negotiate, e.g., a Fair Treatment Charter, on behalf of member organisations.
Recommendation 5: The Institute of Credit Management should review and amend the PPC to reflect the issues identified.
Recommendation 6: The Government should establish a Construction Code of Conduct, similar to the Grocery Code, with an independent adjudicator for mediation. To ensure that large companies are not intentionally delaying payments to suppliers for their own financial purposes, the contractually agreed payment should be held in an independent trust. Once all the conditions for that contract have been met, the payment can be made to the supplier. A Credit Ombudsman will arbitrate in disputed cases. This will require legislation
Recommendation 7: The Government should introduce a Retentions Monies Bill with money retained by a customer for a supplier to be held in a trust.
Recommendation 8: The Government should require all new Government contracts to include Pre Qualification Questions on past payment performance, and should consider the payment history as part of the bidding process.
Recommendation 9: The Government should make fair payment a contractual requirement for new Government contracts, with Tier 1 contractors paid within 14 days, Tier 2 within 19 days and Tier 3 within 23 days. 4
Recommendation 10: The Government should support intermediary agencies, e.g., SME organisations or trade associations, to act on behalf of suppliers seeking recompense through Late Payments Directive.
Recommendation 11: The Government are urged to implement a growth strategy that recognises the importance of SMEs and to commission research to assess the macroeconomic effects of late payments on SME suppliers.