In Focus Commercial Credit
Three-point plan needed to avoid ‘another Carillion’
Significant changes are required to prevent small businesses failing due to late-payment practices by larger firms
Mike Cherry National chairman, Federation of Small Businesses
Strengthening the Prompt Payment Code, adopting project bank accounts, and assigning non-executive directors for the supply chain, are vital reforms needed to protect small suppliers against another Carillion payment-practice scandal. One year on from the collapse, we urge
the government to implement a three-point plan which we believe will stamp out poor payment practices running rife. The three- point plan includes the following reforms: l The Small Business Commissioner should use his new powers to strengthen the Prompt Payment Code. This includes introducing tougher penalties for those companies that break the rules. l Non-executive directors responsible for payment practices and supplier relationships should be appointed to the boards of big companies. l The adoption of project bank accounts in all major public-sector contracts, with proper parliamentary accountability to ensure their use. The collapse of Carillion was a watershed
moment that brutally exposed the shocking ways that some big businesses treat their suppliers. The construction giant used its dominant
position to squeeze smaller firms with late payments and unreasonable payment terms in an attempt to shore up its own precarious position. These practices did not save them and
their failure has resulted in very real human consequences. Many small businesses were left with nothing for the hard work they had undertaken beforehand and given nothing in compensation after. Some did not survive.
February 2019
We believe that the way to shift poor payment culture outside of British boardrooms is through appointing a non-executive director to look after a firm’s supply chain, chairing a ‘supply chain’ committee or beefed-up remuneration committee
www.CCRMagazine.com A year on, we have seen the government
be proactive in attempting to improve public procurement and stamp out poor payment practices. Recent reforms to crackdown on public sector suppliers that do not pay on time are welcome and send a clear message that paying late is not okay. However, more must be done to ensure
private, as well as public sector, supply chains pay on time.
Take action Firstly, the Prompt Payment Code, Carillion being a signatory at the time of its collapse, must be radically strengthened. The Small
Business Commissioner must use his ‘name and shame’ powers to expose firms who flout the rules. Secondly, project bank accounts would
enable prompt payment when work is completed and prevent big companies from hoarding money to improve their own balance sheets. Lastly, we believe that the way to shift
poor payment culture outside of British boardrooms is through appointing a non- executive director to look after a firm’s supply chain, chairing a ‘supply chain’ committee or beefed-up remuneration committee and setting out the results of
their work in the annual report. We have seen the government take an active role in this space by appointing a non-executive director in each government department who will be responsible for payment practice. We want to see this move expanded to larger companies. These reforms are not the silver bullet
that will immediately bring an end to the scourge of poor payment practices, but they will certainly go a long way to achieving this. CCR
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