City & Business: Macho late payers

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IT'S THE red bill syndrome writ large: never pay the gas bill until the red reminder notice arrives. Would-be finance directors learn this at their mothers' knees and take the lesson into the corporate world, where they never pay suppliers until the last possible moment, and then some.

Of course large companies publicly pay lip service to the idea of prompt payment and general good corporate citizenship. The reality is that the brownie points go to the finance director who can find the most reasons for delaying payments to suppliers.

Occasionally the curtain is lifted. At Hillsdown Holdings, as we report on page 1, an internal memo proudly boasts of the 'dizzy heights' achieved in keeping creditors waiting for their money from one subsidiary.

Late payment seems to be a measure of bean-counters' machismo. Finance people like to put their foot to the floor, pushing the 'creditor days' needle into the stratosphere.

Smaller, weaker suppliers suffer most, and there's a growing body of evidence that late payment is often the final nail that drives small firms to the wall. But you could argue that they should be more careful about whom they choose as customers.

The more serious problem is the sheer amount of management time and emotional energy that has to be devoted to the boring, banal business of chasing debts, for no net gain to the business community as a whole. It's like everyone standing up at a football match: no one sees any better and everyone gets tired legs. The whole ghastly business of re-invoicing and polite reminders and threatening letters and pleading telephone calls and lawyers and debt collectors creates not one jot of wealth.

There are all kinds of weird and wonderful suggestions for persuading companies to pay on time, from confiscating a late-paying firm's Queen's Award for Industry (should it happen to have one) to shaming it by forcing it to say in the annual report how many days late on average it pays. There's even talk of introducing a British Standard for prompt payment.

But the culture of feet-dragging is so deeply embedded in companies that I suspect nothing short of a statutory right to interest on late payment of trade debts will speed things up. The Department of Trade and Industry has taken submissions on what should be done and business is pretty evenly divided. The Institute of Directors and chambers of commerce want a statutory right. The Confederation of British Industry and the accounting profession do not. Marks & Spencer and NatWest Bank are keen. GEC and Barclays are not. In the Government, Kenneth Clarke is thought to be in favour while Michael Heseltine seems to be against.

One cunning idea (from the Forum of Private Business) is that as well as a statutory right, sinning companies would be obliged to report the total interest they potentially owe - not just what is claimed - as a contingent liability in their annual accounts. Suppliers would be able to claim interest for six years after the debt was due. The more a company delayed paying its debts, the faster the contingent liability figure would mushroom - a prospect to frighten even the most die-hard late payer into promptness.

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