Can you really legislate for late payments? - Part 2

Mar 12, 2018
Brian O'Connor
Opinion

In my last post i concluded that you cannot directly legislate for late payments.

But what if you took a different approach, would indirectly legislating for late payments work?

Let’s look at one example - in April 2017 a regulation on The Reporting of Payment Practices and Performance came into force in the UK. This regulation requires organisations to report detailed statistics on the average time taken to pay invoices, the proportion of invoices which were not paid within agreed terms and the average time to pay any given invoice.  The organisation must also provide descriptions on its payment terms, its process for dispute resolution, and any supporting services such as e-invoicing or supply chain finance.

It is hoped that by publishing this type of information you will enable businesses to know exactly how quickly they are likely to get paid from their customers.  They can then make a more informed decision on whether those payment conditions are manageable or not.  

This regulation however only applies to large companies, as defined by the UK Companies Act (2006) - so that is any company meets and two of the following three criteria will be included: annual turnover above £36m, total balance sheet of more that £18 million or more than 250 employees.

Late payments are an issue that cannot be solved quickly. Improving late payments requires a change in the mindset of customers who need to understand the implications of their actions. This reporting regulation does exactly that. In requiring companies to publish their payment statistics, it encourages transparency as their payment behaviour becomes very public.

Initially designed as an attempt to reduce the power that large companies can have over SME’s when it comes to payments, it should be noted that large companies are not alone when it comes to late payments. SME’s are equally as guilty. To make a more level playing field the measures in the Reporting of Payment Practices and Performance regulation should be extended to all companies.

everyone should be required to publicise their payment information.

This would encourage businesses or all sizes to consider the implications of not paying their suppliers on time.

photo credit: Rawpixel on Unsplash

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