Lord Harrison: It's time to get tough on late debt payments

25 years ago, as an MEP I took on the task as rapporteur in the European Parliament of steering through the proposed Directive on Late Payment on Commercial Debt from the European Commission which had prevented small firms from taking advantage of trading in the Single European Market and across its internal borders.

Whilst not interfering with two firms contracting suitable payment periods (typically 30 days), we did suggest that the new law needed some bite in the form of the late payer forking out interest compensation to the late payee.

During the Blair/Brown years the then Labour Government tried to give flesh to this legislation by introducing the penalties on the largest firms first before making it apply to all businesses. This legislation did not blossom. Big businesses still paid smaller firms often suppliers late. Such firms were inhibited from invoking the legislation, fearing breaking successful links with bigger firms they supply.

For the past 16 years in the House of Lords, I have pursued this vexed question, believing that there is an inherent unfairness practised upon small businesses by depriving them of funds that are needed to expand and develop successful businesses.

Small business groups unremittingly complain that the problem is still to be resolved. The Federation of Small Businesses’s latest report still finds that late payment causes cashflow problems for 1 in 3 small firms; that 1 in 4 firms have had their agreed payment periods altered unceremoniously  by as many as 45 days! That only 1 in 100 firms find the unenforceable Prompt Payment Code in any way effective.

These cheated small firms call for greater punishment for firms who fail to pay suppliers on time, tighter enforcement of the rules or for firms to be made an example of who don’t pay on time. I agree. And I shall be pressing the minister to institute sanctions on firms who duck dive and deviate from paying what they owe.

The Government in the forthcoming Enterprise Bill propose a Conciliaton Committee for disputing firms. I fear this is a rehash of old and tired policies.

Only in the area of Government Departments has paying on time  marginally improved.

For the sake of our entrepreneurs, who represent the backbone of the economy, it is time to get tough!