My letter to
Andy.harrison@bis.gov.uk
As a qualified accountant and member of both ACCA and MICM with close on thirty years experience dealing with SME could I make a couple of suggestions :-
1)
SME DO NOT WANT MORE LOANS we want our debts paid quicker. How many millions are sitting in large companies bank accounts which could be used to clear debts quicker. Net effect to the UK economy and taxpayer ZERO. Effect to large companies loss of a minimal amount of interest earned from the banks – but big savings in interest to the whole supply chain below (HMRC included).
2) If the ACT is to be changed or replaced could the name be amended to Late Payment of Commercial Debts (PENALTY) Act. The reason being Penalty is a more forceful word than interest.
3) Your impact assessment assumes an SME incurs £5,000 collecting late debts This is very low – in London a basic temp costs £25 per hour and we certainly spend more than 1.65 hours a day chasing late debts
4) The UK government has an opportunity to LEAD Europe not follow – therefore why water down our current legislation by removing the current tiered structure why not increase it – after all the current low penalties do not appear to have worked.
5) Why not consider something far more radical ? For example HMRC have introduced a new penalty system for late payment of PAYE. Big companies are set up to process staff wages and settle their PAYE in 14 days – why do we then accept the excuse that it takes 60 days to process an invoice - especially when one considers most large companies will already have issued a Purchase Order and will thus know the amount to be paid IN ADVANCE of placing an order, unlike their wages bill where staff fail to turn up, turn up late, leave, start and have holidays not to mention overtime and lateness and the numerous amendments to tax codes\rates. If a company can apply sufficient resources to pay staff in seven days of payroll date and HMRC in 14 why does it need 60 days to pay its supply chain ?
Consider these facts.
RBS charge 29.5% on unauthorised overdrafts PLUS £35 per day
Lloyds charge 26.4% plus £15 per item
HMRC charge between 1% and 4% penalty on late PAYE, rising to 14% if unpaid in a year + interest
These are automatic charges added to an account without fear of loosing the taxpayer \ customer and there is an element of discretion post enforcement. Similarly there is no requirement to go to court to argue the validity or reclaim the money.
The proposed Late Payment legislation offers a penalty of £31 (40 Euro) and interest of 8% over base – which is often only paid following litigation this may be effective for a late paid debt of £20, or even £200 - but is not worth considering for a £10,000 plus invoice.
The original advise by The UK Government was that an SME could levy the penalties up to six years after the event (it was anticipated that such charges would be raised once the SME ceased working with a client). Perhaps this fact could be codified.
What is ‘reasonable compensation’ – does it only cover 3rd party costs ? What about the considerable time and expense incurred internally pre-appointing a lawyer or debt collector. What about the time incurred in correspondence pre-post by the debtor, what about the companies that specifically employ internal people to collect debts ?
The real question I guess is what is the purpose of legislation – is it to change the culture of late payment or make a token gesture towardsthe costs of late payment.
I trust that the above assists in the debate