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Will UK Gov'ts Late Payment Solution Deliver?

On the 26th July 2015 the UK Government launched a consultation on proposals to establish a Small Business Commissioner to help small business resolve supply chain disputes with other larger businesses. See to participate in the consultation.

Paragraph 7.13 makes clear that the Government see a role for mediation:-

"Where appropriate the Commissioner will propose mediation to resolve a dispute”

and 7.16 shows further support for the fast developing role of ODR:-

"On-line dispute resolution is now commonplace as a form of dispute resolution and the Government will explore its potential to form part of the services offered. "

However, there is a major problem with the Government’s perspective, which I deal with below.

As to the background, late payment by large corporations to small suppliers has been a long standing problem. It is a management policy that exploits the weakness of smaller businesses, fearful of destroying an otherwise lucrative supply contract by challenging their larger, big brand, customers or simply unable to afford court action. Previous attempts to generate a ‘payment on time’ culture has never fully achieved its potential. Many large companies claim to honour such a culture but in practice do not.

The latest proposed solution is to create a Small Business Commissioner who main functions will be to provide information, general advice and signposting to small businesses, deal with complaints and offer mediation to resolve disputes.

It’s hard, from past history, however, to avoid a cynical reaction. It doesn’t help that, despite launching a consultation to consider views and opinions, it already sets out one ‘no go’ area – any form of compulsory, out of court, resolution. So, once again, the success will rely on good intentions expressed at the Boardroom filtering down the chain of management to change the attitude of account managers seeing late payment as simply a way to help maintain cashflow targets.

This reflects s similar weakness by the European Union in its recent legislation on consumer dispute resolution in which, after setting out a detailed structure requiring retailers faced with disputes with customers to take an active role in notifying customers of approved services offering out of court resolutions, it backed off making participation with such services obligatory on the part of the retailer. See my previous blog on the unintended consequences that may result and , in particular that avoiding compulsion on the part of retailer may risk damaging the whole objective of the legislation, being to improve the Internal Market by increasing trust between consumer and trader. (These issues with information on the detail of the legislation and consideration of how retailers and service providers can improve their market strategy by their reaction to the legislation are to be covered at a Conference we are organising at the Theatre Royal, Drury Lane, London on the 7th September – see here for more details).

Surely, as with consumers, what small business needs is compulsion on the part of large business customers to be bound by a speedy form of officially approved Online Dispute Resolution with obligatory mediation which, if it fails to achieve a mutual agreement, results in a binding adjudication outside of court. If larger businesses do not like losing the opportunity to buy a costly legal team to give them advantage in court, then they can simply buy their supplies in future from larger companies not covered by such requirements …..or how about just paying on time as they originally agreed to do?

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