Monday, 29 December 2014 15:01

Payment terms over 30 days 'should be banned'

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A fundamental characteristic of late payment legislation so far has been its voluntary nature - nobody forces big businesses to sign up to the Prompt Payment Code, and nobody forces SMEs to charge penalty fees on late payments.

Now one organisation is calling for this to change, with a policy paper that suggests making several aspects of late payment legislation unavoidable for creditors and debtors alike.

The paper by our good friends at IPSE, the Association of Independent Professionals and the Self Employed, says the Prompt Payment Code should be strengthened through a series of incentives for those who adhere to its requirements.

But on other issues, such as 60-day and 90-day payment terms, IPSE have taken an even stronger stance - and want to see terms over 30 days outlawed completely.

Simon McVicker, director of policy and public affairs at IPSE, said:

"Action should be taken against the weak legal sanctions around late payment. No business should be paid more than 30 days late - every day a payment is late should be subject to interest.

"Automatic fines must be applied of up to 10% of the contract where a payee still fails to pay up after 60 days. Payments terms of longer than 30 days should be outlawed."

We agree in principle, but in practice we think some of IPSE's policies raise more questions than they answer - for example, why take such a firm stance, but still allow 30 days of lateness on top of the original invoice deadline?

Standing Firmangry man

The truth is that there are already plenty of different pieces of legislation in place to protect against late payment, and while nobody should be forced to use them - you might want to allow a valued customer to miss their deadline as a one-off gesture of good faith, for instance - we do feel that more frequent use of the late payment legislation would be a step towards a prompter payment culture in general.

As for strengthening the Prompt Payment Code, the simple fact of the matter is that nobody changes their payment culture because of it; it is simply a promotional tool for companies that already paid their suppliers on time to point to in their publicity.

For big brands with punishing 90-day or 120-day payment terms, there is the option of simply not signing up to the Code in the first place, and actually it is not really the place of the government to interfere with mutually agreeable payment terms, as long as both parties involved are satisfied with payment over 30, 60, 90 or 120 days, or any other duration for that matter.

The important thing is when a customer fails to pay on time - and on this, we don't think a single day of lateness is acceptable without a strong and valid reason, and even then only with the prior agreement of the creditor.

Late payment legislation already covers everything from charging interest and penalty fees, to recovering the cost of debt recovery action from the debtor; following the changes made in recent years, the regulations that are now in place are quite adequate and up to the job.

It is now on business leaders, from SMEs up to the biggest brands, to make sure the legislation is used when necessary, to agree on genuine payment terms that both parties are happy with and intend to stick to, and ultimately to work together to keep cash flowing, and make a prompt payment culture the default position for businesses throughout the UK.

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