Late payment as a significant problem for businesses, especially in Scotland.
Conclusions
Our research has been clear about the effects of the late payment problem on Scotland’s business environment. Moving forward it is crucial that we legislate to curb this problem. As such, we propose that:
1. The Scottish Government legislate against late payment and impose a time limit for payments. We think this would prevent larger companies taking advantage of small businesses and accelerate cash flow/investment in SMEs. This would also involve changing public sector procurement rules so that contract winners must pay subcontractors in 30 days or less and that Scottish-based SMEs share of government contracts doubles over the next five years.
2. Furthermore, we believe that accentuating the powers of a Scottish Small Business Commissioner as well as raising awareness of its function is crucial to ameliorating the late payment problem. Reflecting evidence we gave to the Department for Business, Energy and Industrial Strategy we call on the Scottish Government to demand that UK government:
3. Create a fully devolved Small Business Commissioner’s office for Scotland, with a wider remit than that of the UK Commissioner to offer greater support for SMEs in conflict resolution around payments and contracts. Having highly devolved Commissioner offices is vital to ensure unbiased decision making. This has been accomplished successfully in Australia which has different Commissioners across the country representing the various regions - Western Australia, South Australia, New South Wales and Victoria.
4. Or alternatively the Scottish Government should seek to boost growth of small and medium sized enterprises through the appointment of a dedicated Scottish Minister for SME Growth, with powers to tackle late payment and increase SME participation in public sector procurement.
5. Make filing a complaint to the Scottish Commissioner a low-cost prelitigation process. It should become a norm that supply contracts state referral to the SBC as the first step in conflict. This is to avoid complications between the supplier and their customer. The SBC should encourage and promote this form of referral in suppliers’ contracts.
6. Ensure the Commissioners determinations are legally binding. If decisions are not binding large companies may use the SBC process to extend or defer payments. Large businesses may spend 6 months in mediation and then not pay. This would be considered wasteful for both small businesses and the SBC. In addition, it would also discourage small businesses to file a complaint to the SBC.
7. Prioritise late payments. Complaints, other than late payments, should be dealt with on a ‘first come first basis’. Small businesses may be experiencing cashflow crisis when they complain about late payments, hence such complaints should be acknowledged and responded to as a priority. 26
8. Make interest charges on late payments mandatory. The government should seek the power to legislate for automatic interest on invoices if late by a certain period of time over the agreed terms. Its all very well introducing such a mesuareg as voluntary but the balance of power between large customers and SME’s servicing large public sector contracts in particular means that business owners are afraid they will lose work or not be allowed to pitch for future contracts if they charge interest.
9. Transparency: Making it that that companies must publicly declare their payment performance would be a huge step forward and shine a light on who the late payers are. Making companies disclose such in their company accounts would be a reserved power but making it a condition of continued supply for all Government suppliers over a certain size limit is certainly within the powers of the Scottish Government