Small Business Commissioner could help contractor pay disputes

Monday 3 August 2015

Business minister Anna Soubry has announced the creation of a Small Business Commissioner, a role that is intended to address the current imbalance of power between large and small businesses.

One of the position’s main aims would be to tackle late payments, which it has characterised as amounting to “supply chain bullying” in some cases, as outlined in the most recent Queen’s Speech.

Any contractor who has had to deal with clients who are slow or reluctant to pay will know the problems that this can cause, from accounting challenges to restricting a freelancer’s ability to do business. It is currently believed that small businesses are owed about £26 million in late payments.

A large part of the problem stems from the growing acceptance of 60-day payment terms. Despite this norm, small businesses often cannot obtain overdrafts for outstanding costs for longer than two months, leading to cashflow issues, particularly when it comes to large contracts and orders.

The Federation of Small Businesses has cautiously welcomed the proposals, saying: “We are encouraged by the government’s consultation process which will include businesses of all sizes. But it’s important to ensure that the new commissioner has… sufficient powers to intervene and resolve late-payment disputes in a timely and effective way.”

It also called for the commissioner to be given the power to refer those operating “harmful” payment practices to the Competition and Markets Authority for further investigation.

In her introduction to the Small Business Commissioner section of the Enterprise Bill, Ms Soubry said she wanted to create “a long-lasting culture change”, as well as ensuring “fairness”. She added that when small businesses were held back, "it limits their growth and productivity, and can put an otherwise successful business at risk.”

She also prominently cited the Victorian Small Business Commissioner in Australia as a potential model for a UK system. At present, more than 50 per cent of the cases brought to it are resolved, with 30 per cent closed within a week, and 80 per cent within 12 weeks.

The proposals include providing an advice service to help avoid disputes before they arise, mediation services to keep down the costs of legal action, and a responsibility to investigate companies suspected of engaging in illegal practices. The post would also serve as a consolidation of existing services, and to more effectively signpost small businesses in need of support.

The government has also confirmed that the Small Business Commissioner may be given the power to name and shame some of the worst offenders, in a bid to deter others from similar action. It has been suggested that the commissioner could be able to force larger companies to publish details of their payment policies to ensure transparency.

The research upon which the bill is based found that 48 per cent of the UK’s private-sector employment is created by small businesses, emphasising their importance to the wider economy.
The Department for Business, Innovation and Skills is currently requesting information from people affected by the issued as part of a public consultation that will run until August 21st.

By Victoria McDonnell

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