The McCannics e-survey, month just ended February 1998 - Late Payment

The DTI responds to the McCannics E-Survey The McCannics survey reaches the business community out on the 'web' and is clearly a method that yields results. We here at the DTI have read with interest the results of the McCannics E-Survey. The comments reflected in the McCannics E-survey mirror many of the comments and concerns the Government received in response to its laid out proposals in its Green Paper "Improving the Payment Culture" published on 28 July 1997. In bringing forward the legislation we hope we have managed to meet many of the concerns raised. We are grateful for the opportunity afforded by McCannics to respond to the E-Survey and to the put the case for the late payment legislation 'virtually' in person. The Government Answers Your Concerns A number of concerns regarding the Government's proposed legislation were raised by respondents to the McCannics survey. Let's take a look at these concerns. Fear of using legislation/losing customers The reluctance to exercise the right to claim interest on late paid commercial debt, and fear of losing a custom, were concerns. We believe that businesses, on the whole, understand the value of good suppliers. They also know that it is administratively time consuming and expensive to replace suppliers. We think that rather than drop their supplier, just like that, for claiming interest on a late paid commercial debt, debtors will go for the simple solution, and try to ensure that they pay their bills on time. Legislation is not a cure all A number of responses either outlined other measures to combat late payment or related their own particular method of dealing with late paying customers. The Government wants to make clear that legislation is not viewed as a panacea. The Government's belief is that legislation must combat late payment as part of a wider package of measures the Government is pursuing. The list of measures has been published in the Government's Green Paper: Improving the Payment Culture: A Statutory Right to Claim Interest on Late Paid Commercial Debt, published 28 July 1998, The list is extensive, and includes amongst other things: Educational measures The publication of a free guide to credit management and debt recovery produced by the Better Payment Practice Group (copies are available by ringing 0870 150 2500 and asking for the Better Payment Practice Guide to Credit Managment); Support for the development of the National Vocational Qualification in Credit Management to ensure that the UK workforce has appropriate and relevant credit management skills; Ensuring that small businesses can access credit management information and advice through the Enterprise Zone - an internet set; Encouraging Business Links and the equivalent organisations in Scotland, Wales and Northern Ireland to support small businesses with their credit management procedures. Working with Business The Government has given full support for the decision by the Federation of Small Business to publish details of the payment performance of public companies in the form of League Tables; The establishment of the Better Payment Practice Group which is an integral part of the Government's commitment to work in partnership with the business community to promote a better payment culture amongst British business. Measures to address late payment in the Public Sector Government Departments and Agencies - must pay all of their undisputed invoices for commercial debts within 30 days or other agreed contract terms. We will publish tables of the payment performance of central and local Government and have recently published a league table of Departments' payment performance for the financial year that ended in March 1997. The table showed that the majority of Departments have paid over 90% of their bills on time. Companies will avoid the provisions of this legislation Among the McCannics' respondents some fears were expressed that late payment legislation would be offset by larger businesses who would simply extend their credit periods to 'contract out' the terms of the legislation. The Government wants to encourage businesses to agree their own contractual terms giving a right to interest if bills are paid late. The legislation will, therefore, give precedence to contractually agreed provisions. However the Bill contains provisions to prevent parties to a contract "contracting out" of the legislation by setting very low rates of interest on late payments, or by extending credit terms excessively or by any other terms which result in no substantial remedy for late payment. The provisions will apply a test of "reasonableness" to such terms. The Courts The Government is fully aware of the link between this Bill and the issues of access to justice. The DTI has been working in close consultation with officials the Lord Chancellor's Department. The Lord Chancellor announced in October that he was pressing ahead with reforms to the civil justice system, aimed at reducing cost, delay and complexity in cases. The Case for Legislation The provision of credit by suppliers to customers is an established feature of business transactions and essential for the efficient operation of the economy. However, the provision of goods and services ahead of payment means that the supplier can be vulnerable to payment delays. Late payment, or just not knowing whether you will be paid on time, damages confidence amongst small businesses, it damages cashflow, and acts as a barrier to growth. Small businesses play a fundamental part in the economy of the UK. The Government is concerned, therefore, by any actions which harm or hinder their competitiveness. By giving suppliers a statutory right to claim interest on late paid debts, the cost of late payment can be put into the hands of the party that can control it: the customer. Support I am happy to see that many who responded to the McCannics survey were already confident that they would exercise their new right when legislation was available. The Government has been pleased to see that its earlier consultation demonstrated widespread support for all of its proposals. Implementation of the Late Payment Legislation The Bill proposes a statutory right to claim interest on late payment of commercial debt. The right to claim will be 'phased' in three stages. In the first stage the right will be exercisable by small businesses against all large enterprises, including public sector organisations. The right will be extended, after a period, probably two years, for use by small businesses against all enterprises and the public sector. Finally, the right will be extended, again after a probable period of two years, to all enterprises and the public sector to use against all enterprises and the public sector. Timetable The Bill giving effect to the Government's commitment to introduce a statutory right for businesses to claim interest on the late payment of commercial debts has now completed its passage in the House of Lords. The Bill is expected to reach the Commons around Easter-time. It is envisaged that the Bill will receive its Royal Assent in June or July and commence in Autumn 1998. Further information Guidance on the operation of the Bill will be made available shortly. You can find more information on the Bill by looking at our web site at: http://www.dti.gov.uk/latepay/ For those who want to know more about this legislation please contact Kobina Lokko or Vicky Bytel of Late Payment Bill Team at: Small and Medium Enterprises Policy Department of Trade and Industry Room 3.D.28 1 Victoria Street London SW1H 0ET Telephone: 0171 215 3931 & 0171 215 0259 respectively.