27 October 2016 by

Having trouble squeezing payment from a big business? The playing field might just be levelling out

The Department for Business, Energy and Industrial Strategy (‘BEIS’) has recently opened consultation on ways in which the Small Business Commissioner (‘SBC’), a new role created by the Enterprise Act 2016, can help small businesses resolve payment disputes with their larger customers.

It is not uncommon for small businesses (i.e. those with a headcount of less than 50 staff) that have contracts with much larger businesses to feel like they have little in the way of leverage or negotiating power when it comes to dealing with payment issues when they arise.

It is sadly not uncommon for larger businesses to take advantage of the reliance that they know smaller businesses have on their contracts with them and they can choose to delay or dispute payments to suit their own needs and worry about the validity of their actions later. The small business is then faced with a difficult decision of choosing between suffering the actions of their customer, or taking potentially expensive court action that may have a damaging effect on future relations.

The intention of the scheme that BEIS is consulting on is to redress the balance in these business relationships and give smaller enterprises an alternative method by which to exert pressure on their larger business partners to act fairly when it comes to payment issues. Under the proposed scheme, small businesses can refer complaints about payment issues for determination by the SBC.

The SBC would then ask for representations from the business against which the complaint has been made before a determination is made. Whilst those determinations will not be legally binding, the SBC will have discretion to publish reports about particular complaints and can name and shame the worst offenders. Negative media coverage is a potent threat to businesses that are inevitably keen to ensure that their public profiles are not damaged, and it is hoped that the relatively simple nature of the proposed scheme will limit the damage to ongoing relationships.

The consultation is seeking feedback on the method by which a small business is defined (i.e. whether headcount should be calculated by reference to the number of individual staff or just full-time employees) and on the list factors that the SBC should take into account when deciding to name and shame offenders. The consultation is due to close on 7 December so if you want to have your say on BEIS’ proposals then you can do so here.

Only time will tell if this scheme can be implemented effectively and whether it will have the teeth to influence larger businesses to act fairly when payment issues arise. It is nonetheless a positive step towards making business attitude towards financial arrangements a focal point of corporate social responsibility and this can only be seen as a positive step.

If you need legal support regarding the payment of debts for your business, please contact one of our solicitors in the Dispute Resolution team here.

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