This is an excellent debate and very timely. The focus to date has been on the challenge in the public sector, but as Debbie Abrahams explained at the outset, the biggest offenders are in the private sector. They are the large British corporates. My comments will therefore focus on what we might be able to do there.
RSM Tenon examined the figures and found that in the first quarter of 2011, 80% of SMEs were paid late. A lot of evidence has been given about the length of those periods. The points made have referred to 30 days, 60 days and 90 days. What we have not put on the table and should is that some SMEs are waiting six months. That is not in any way acceptable.
To deal with the problem, we need to understand why it exists. This has already been implied, but I think that it is worth putting on the table the fact that one of the main problems is the imbalance of power. The large companies have significant trading power over the smallest, and as the recession has bitten, so all the very small companies are fighting for every contract that comes through the door and do not necessarily think as strategically as they might about whether a contract is a good one or a bad one.
Small businesses could do a couple of things to help themselves. I was interested to learn that a large number of small businesses enter into no form of written contract. The consequence is that they are then dependent on the Late Payment of Commercial Debts (Interest) Act 1998. That is excellent legislation, but as has already been expressed, it depends on the willingness to enforce it, because clearly there is a cost to litigation.
I was also surprised by how few small businesses do any form of credit check. According to the Institute of Credit Management, 25% of businesses make no checks at all. If people make those checks, they can be a little more streetwise in terms of how they negotiate the contract and they might think about some form of part-payment in advance.