Philip King, chief executive, Institute of Credit Management
The answer is emphatically "yes". The issue is, what form should such regulation take? Late-payment legislation already exists, of course, and has done for more than a decade. But research by small-business organisations has always revealed that awareness of the legislation is low and its enforcement is lower still.
A new EU directive gives suppliers more power to charge interest on late payment, but many are unwilling to make claims, scared of the impact this will have on customer relationships. Our argument has always been that suppliers—particularly suppliers of essential goods and services—should be more certain of their part in the supply chain. But that is easier said than done.
The critical point about late payment is not so much about when you get paid but more around the certainty of payment. This was the ethos behind the Prompt Payment Code (PPC) that the ICM designed and now manages on behalf of the Department for Business, Innovation and Skills (BIS).
Obsessing with a 30-day payment period, proposed by the EU, and extending this limit to 60 days "in exceptional circumstances", is missing the point. A milk producer providing a local supermarket chain requires payment in days, not weeks; a manufacturer of aero engines may require staged payments over a contract that may last years. Making a hard, fast and enforceable law that says payment must be made in 30 days may have the opposite effect of what is intended.
What the new late-payment directive will do, and why it should be welcomed, is to create further debate on the subject. A culture which says it is acceptable to pay a supplier outside of agreed credit terms, or to change those credit terms mid-contract, has to be wrong.
David Taylor, chief executive, OnGuard
It is hoped that the late-payment directive will get cash flowing across supply chains and improve liquidity in the economy. It lays down minimum requirements that, if breached, allow suppliers to charge late-payment fees and interest on outstanding balances.
The end goal is certainly something the business community must work towards. Unfortunately, though, the fundamental premise of the directive is flawed; the idea that a supplier would formally penalise a customer is completely alien to how business is conducted in the real world.
The customer-supplier relationship is fragile and under pressure like never before. Businesses must work hard to retain customer loyalty; something the information age has exacerbated as new suppliers can now be sourced in seconds. Risking a contract by penalising a customer in return for a late-payment fee, or a small percentage of an outstanding invoice, does not make business sense in this environment.
It is true that not all business is worth retaining, but why risk losing long-term business for small, short-term gain? We need to get cash flowing through the economy, but forcing payment is not the way to do so. It's far better to spend time nurturing customer relationships to ensure everyone, from the core account team to finance and collections, works to enhance relationships and build loyalty.
There are those who believe that once the directive becomes common practice it will hold the entire business community to higher standards. Paying on time and responsibly is something all businesses must start to take more seriously. But who will set the trend and be the first suppliers to penalise their customers? Any takers? Thought not.
