That is fine as far as it goes, but thebig- business-oriented CBI has missed the main point. Bad debts - money the debtor never intends to repay - are only a small part of the cash-flow problem for small businesses. The real trouble is late payment - a debt paid in, say, 45 days instead of the agreed 30 days. Of the pounds 104bn of trade debt outstanding to small businesses, pounds 40bn is late.
The problem has been getting worse as big businesses delay payment to improve their own cash flow. On average small businesses wait more than 80 days for payment by trade customers, nearly a week longer than five years ago. Desperate not to sour trading relationships, small businesses often do not take debtors to court.
Germany, France, the Netherlands and Denmark, to name but a few, have laws penalising late payment or enforcing prompt payment. They recognise the social interest in stopping big business solving its problems at small businesses' expense. The Government's reluctance to legislate looks increasingly eccentric.
Some officials claim there is no point in forcing prompt payment because the market would simply adjust by lengthening contractual payment periods. Small businesses reply that it does not matter if customers promise to pay in 60 days instead of 30. What matters is that they know when they will get their money.
Without that certainty they cannot properly control their cash flow or raise credit, and many ultimately go bust.Reuse content