The government’s plan to mandate 60-day payment terms between private businesses is facing a backlash because it has unintended consequences.
Ministers want to close a loophole in legislation dating from 1998 that allows big firms to extend their payment terms beyond 60 days, effectively using their small suppliers to bankroll their activities. A consultation closes on Thursday.
However, the proposal has met with unexpected opposition from some industries in which long payment terms benefit smaller companies. One is the book-selling trade.
“I think these proposals are probably about as popular with booksellers as a Keir Starmer autobiography would be,” said Tom Rowley, managing director at Backstory, an independent bookshop in south London.
Trade bodies such as the Federation of Small Businesses support a crackdown on long payment terms. They see the present requirement for big companies to avoid long payment terms only where they are “grossly unfair” as largely ineffectual.
Paul Wilson, policy director of the FSB, said: “That’s a very hard to prove test and it basically means if a big business wants to have a longer payment term than 60 days they can at the moment. That’s wrong.”
The proposed legislation also tackles late payments, and proposes changes such as audit committee and board-level scrutiny of large company payment practices, financial penalties for persistently late payments and mandatory interest on late payments.
There are fears about the effect of new payment terms on independent bookshops
ALAMY
A record number of UK companies paid over half their invoices late in the first half of the year, with average payment times exceeding 50 days. According to analysis taken from companies that submitted information as part of the UK’s Payment Practices and Performance Regulations, 127 companies take more than 80 days to pay, an increase from 85 earlier this year.
Publishers sell to booksellers on the understanding that after a few months, if the books are not sold, they can be returned to the publisher for credit on the bookseller’s account.
Rowley said changing these terms could disrupt the whole industry, meaning booksellers would be less likely to take risks on new authors.
Rowley at Backstory added: “Extended credit terms, which we have negotiated with most publishers, allow both publishers and booksellers to take risks.”
He said: “We would absolutely always be able to order with confidence the new Richard Osman book, or the new Jamie Oliver cookbook, because we’d be certain that those would sell, but this would be very bad news for a debut author.”
• Join The Sunday Times Get Britain Reading campaign
The Booksellers Association said it “empathises with the government’s intentions”, but “a one-size-fits-all cap on payment terms risks serious unintended harm to a sector that already operates on thin margins and seasonal sales patterns”.
Meryl Halls, its managing director, said: “At worst, these rules could trigger mass closures of independent bookshops, the type of business the legislation is intended to protect; at best, they would significantly disrupt the UK’s world-leading book trade ecosystem and undermine its vast potential for growth. We therefore urge the government to continue to work constructively with the trade before proceeding.”
Wilson at the FSB said the government’s proposed terms would work for the majority of businesses that deal with longer payment terms and suffer from late payments.
“Look at the harm that late payment is doing, at the time it’s taking away from running a business, the mental stress it adds, not knowing if you’re going to be paid money that you should be owed,” he said.