When the Late Payment of Commercial Debts (Interest) Act 1998 was introduced it was hailed as a panacea for all ills suffered by small businesses. It introduced high interest charges for late payment of B2B invoices and fixed penalties on top. At the time when the legislation was introduced interest charges of 13% were the norm but now that interest rates are at 0.5% the interest claimed is only 8.5% which doesn’t sound as fearsome at 13%.
Most people working in the debt collection industry would probably agree that the Act has done little to speed up payment of invoices. Cash flow is still the largest factor leading to the demise of a small business.
The Government plans to conduct a review of the current legislation following a YouGov report which found that 85% of the small businesses surveyed had been paid late in the preceding two year period. I would have thought that figure to be much higher and I would imagine that the businesses surveyed had multiple experiences of late paying customers.
Quite how the Government expects to solve this problem I do not know. How it will be policed remains to be seen but I imagine it will still be down to the individual firms to pursue late payment through the Court to secure the extra interest and penalty charges.
In my experience, large companies are amongst the worst culprits when dealing with smaller companies. They have the financial means to show others how to trade fairly and ethically. If more weight is to be thrown behind these types of laws and initiatives the authorities must be in a position to fine and punish the culprits particularly the large companies and plcs.