An announcement from the coalition that it plans to legislate to force “major” companies to publish data on their payment performance has received a lukewarm welcome from SME representatives – and there’s disappointment that the new law is only likely to go on the statute book after the General Election.
Business secretary Vince Cable announced on Friday the results of last year’s government consultation on Building a Responsible Payment Culture, aimed at improving payment practices across the economy to help SMEs.
Cable said that a clear majority of the 100 businesses and organisations that responded called for more disclosure to tackle late payment.
He said: “The government has taken action to create a responsible payment culture but we need to go further. We will now make it compulsory for large companies to publish information about their payment practices so that those who are not playing fair can be held to account.”
However, the proposal is subject to "parliamentary time" and is unlikely to be passed in this Parliament.
Trevor Drury FCIOB, managing director of contracts consultancy Morecraft Drury, believes the move has the potential to be a more effective lever for change than the Construction Leadership Council’s new Supply Chain Payment Charter.
“Statute makes a whole lot of difference because it’s law,” said Drury. “I’m dealing with a case at the moment where the payment times are terrible – the subcontractor will have to wait two years to get the last payment in the final account [before retentions].
“I don’t know what the government’s definition of ‘major’ is, but we’re talking about a very well-known national contractor. If they make this law, that’s really going to shake things up.”
But on reviewing the details of the proposed arrangement, he was less optimistic. “There is little to compel a company to pay promptly. The government has even backed down from ‘naming and shaming’ but wants to develop a ‘robust reporting framework’. This will have useful content and is intended to be helpful to suppleirs and clients as public information. But it is all about achieving a positive reputation with no real penalty for failure to comply. What SMEs want is to be paid on time and in a reasonable period of time, not a framework of KPIs.”
The accompanying government statement said: “There was strong support amongst respondents for increasing transparency on payment practices. We will therefore work with businesses and business organisations to develop a new, robust reporting framework that has useful content and is structured in a way that is genuinely helpful to suppliers and customers.
“To give force to the reporting framework, we intend to give it a legislative underpinning when Parliamentary time permits.”
Meanwhile, Peter Vinden, managing director of The Vinden Partnership, also attached conditions to his welcome: “Any motion to publish payment records will have a powerful impact on the issue of late payments. This makes the business secretary’s pledge to promote transparency an encouraging step towards the fairer treatment of smaller businesses.
“What I would now ask the government and Institute of Credit Management is how the publication of company payment practices will be audited, and I would hope that the penalty for failing to provide payment records is clearly defined. For example, requiring auditors to provide third party verification, perhaps in the form of a certificate, would be a useful tool for ascertaining how reliable a potential client is.
“If the new strictures are implemented successfully, then I believe that they could be a more powerful instrument for change than the voluntary Supply Chain Charter.”
The government also said that it would work with the Institute of Credit Management (ICM) to strengthen the Prompt Payment Code and to increase accountability of signatories.
This is likely to involve making it easier for suppliers to complain to the ICM if a signatory to the Code has not upheld its requirements. At the moment, confidential complaints are possible via the Prompt Payment Code website, but the facility has not been widely used.
