Why a plan to recover the sums contractors are owed doesn't add up

A raft of anti-late payment ideas has been floated in the past few months, ranging from a ‘conciliation service’ for small firms and forcing big brands to publicise their payment terms, to trade bodies going to war for their members, writes Adam Home of Safe Collections.

It might all feel a little bit like Groundhog Day; again! Publicising payment terms is already a principle of the voluntary and largely toothless Prompt Payment Code (PPC). And we also already have mediation, so unless you're involved in bending the government’s ear to make them repackage as a 'service' something that's already in place, it’s likely to leave you feeling cold.

When more is definitely less

As some unmoved contractors wonder, is it a case of “nice idea, shame about the detail?” Well yes, probably. But the issue isn't a lack of ideas; it's too many. There are already laws in place to let you name your payment terms and take action when invoice deadlines are missed.

What we really don't need are good intentions, and a slew of 'best practice' voluntary codes, ethics and duplicate services that muddy the waters, and simply give the bad payers of this world another excuse to hold up payment even more. We can just foresee Mr Late Payer claiming: ‘I was going to settle up via the conciliation service but I was waiting for Mr out-of-pocket’s representative body to contact me direct – and anyway, it says in the PPC that 30 days is only the ‘standard’ time to pay, but the work we are due to pay for was by no means a standard piece of work, so we agreed 45 days. What’s all the fuss?’

Mediation by any other name

Just to be clear - a 'conciliation service' for micro-businesses that are owed money sounds like a good idea. Our concern is that it’s not going to be everything it claims to be.

According to the service’s initial details, the smallest of firms will be able to recover debts without fear of negative repercussions – and that’s worthwhile because there's still dread for suppliers chasing debts in case they get blacklisted by future clients.

It's a panacea for a problem that really shouldn't exist, because there's no way you should have to feel reluctant to chase money that's legitimately owed to you, let alone go through a mediation process to negotiate getting it paid.

And of course it's basically a variation on the existing Alternative Dispute Resolution (ADR) processes already offered by the courts. These services are fine in theory, but we know from experience that some unscrupulous companies include mediation clauses in contracts, not out of any legitimate desire to settle a dispute amicably, but purely to provide yet another barrier to litigation to the creditor. We therefore anticipate that contracts heading off the use of the government’s small business conciliation service is a real prospect.

Also though, consider the not insignificant length of the existing escalation ladder when unpaid – from invoices and reminder phone calls to three types of late payment letter, right up to collection agents, solicitors, litigation and enforcement. So there are, in fact, plenty of ways to recover a debt, without needing yet another government plan that appears to do little more than rehash the existing options.

Fair trade? Their trade? It’s your trade, nobody else’s

On top of the conciliation service, there are also plans to give trade bodies the ability to challenge unfair payment practices on behalf of their members.

Again, this sounds good in theory - it's a bit like getting your big brother to confront the school bully, but it shouldn't be mistaken for small businesses taking action in their own right.

For a start, not everyone is a member of a trade association and, even if you are, that shouldn't be what determines whether or not you get paid what you’re owed or how long it takes to receive payment.

Secondly, trade bodies have plenty to do already, without acting as a mediation service or debt collector for their members. That's what debt collection agencies, solicitors and the courts are there for. You simply shouldn't need to get your big brother – sorry, your association -- involved when an invoice goes overdue, or when somebody wants to pay you in 100 days' time.

Third and final, let's not forget, your payment terms are your own business, not your trade association's. Not convinced? Well, let's say your association decides 35-day terms are OK for their members, but you prefer 14-day terms. What then? 

Only one person or organisation should set your terms, and that's you -- the contractor in control of his or her own business. And in the unenviable situation when payment is overdue, you need an ally wholeheartedly committed to chasing that debt, not a trade association that's just been handed those powers for the very first time. This is a major point; recovering a debt is an art that requires skill, knowledge, resources and tact – it’s invariably not about sending in the heavies. If the actual process of recovery was so easy, late payment would be less of an issue.

Final thought

All in all, while we applaud the government's continuing commitment to challenging the late payment culture and championing the rights of contractors and other micro-business suppliers, the current medley of plans to get them the sums they’re owed  just don’t seem to add up.

Editor's Note: Related Reading -

Suppliers get tough with late-paying clients

Why contractors will always need the courts