Crystal Umbrella

Several police forces across the UK have come under fire over the past week. Reports released under the Freedom of Information Act show many constabularies to be late invoice payers.

The government have repeatedly issued directives which detail best practice in settling invoices. They state that all payment should be made promptly. However, many businesses who are direct suppliers to police forces across the UK have been kept waiting more than two months for their invoices to be settled.

Of course, this is not to say that all police forces keep their suppliers waiting. On the contrary, many police forces are actually very prompt payers, settling invoices within a matter of days. Information gained from the Forum of Private Businesses actually suggests that some of the UK’s police forces settle more than three quarters of their invoices within 10 days with the remainder paid within 30 days. However, if you look at the flip side of the coin there are also forces that settle just 1% of their invoices within ten days of receipt, with over half still outstanding within a thirty day time-scale.

Alongside this staggering data is another research survey, which has found that SMEs usually accept late payment rather than placing demands on their customers. There is a fear amongst 17% of those surveyed that legal action would be too expensive, while 10% do not want to miss out on the possibility of repeat business. Of course, the knock on effect of non-payment for SMEs is huge. The worst-case scenario is that a small business could effectively be forced to close as a result of the disruption to its cash flow.

Small business issues pertaining to unfair banking practices are not new. However, as the credit crunch and subsequent recession hit, small businesses were faced with increasing difficulty obtaining lending from their banks. Once again, last month, figures from the British Banking Association showed that business lending was in decline. There has also been much frustration regarding the length of time small businesses and contractors have had to wait to find out if their application has been accepted or declined.

Now the Forum of Private Businesses is asking small businesses to take part in a survey, which will ask for their banking experiences. This is being conducted on behalf of the Office of Fair Trading. They want to know how the big banks are treating small businesses. The Forum is trying to encourage as many small businesses as possible to participate in the survey to provide the OFT with plenty of evidence of unfair treatment.

Thomas Parry, FPB Research Manager, commented: “Clearly, the issue of the way banks treat small firms has received an enormous amount of attention recently and sparked a lot of debate.

“One the one hand, groups like the Forum have been arguing that viable smaller firms are being unjustifiably denied credit, or offered it at an extortionate cost, by risk-averse banks which often don’t understand their needs.

“On the other hand, the banks and their industry groups have claimed that lending is down simply because demand is down and they are doing everything they can to increase the flow of finance to business. There is also a wider debate about competition between banks, with some critics arguing that smaller firms, particularly in Scotland, face a limited amount of choice in the marketplace.”

Mr Parry concluded: “We hope this survey will provide the OFT with clear, empirical evidence and reinforce the valid concerns many small business owners have over their relationships with their banks, and the banking industry in general.”

Vince Cable has unveiled the measures which will be introduced by the government in their bid to tackle red tape faced by small business and third sector organisations. The government are aiming to change the interaction between themselves and these businesses. They are already encouraging people to become involved by nominating legislation which needs to be reviewed on the ‘Your Freedom’ site which was launched by Nick Clegg.

Now, Mr Cable has announced that the one-in, one-out system will commence on 1st September. This means that in order to implement any new regulations which will affect small businesses or the third sector, the government will have to remove an existing regulation which has the same value.

The government will also have to abide by Principles of Regulation when considering any new regulations. They will also be subject to the scrutiny of the Regulatory Policy Committee which is an independent body. They will analyse proposals, examining evidence, prior to any legislative decision being made.

Mr Cable has also disclosed plans for government ministers to become involved in the Brussels process of implementing EU regulations at an earlier stage. The aim is to stop the process of ‘gold-plating’ EU regulations by negotiating earlier in the process.

Speaking about these new measures, Mr Cable commented: “Together these measures represent a fundamental shift in how Whitehall has traditionally used regulation as a way to command and control. We have to move quickly delivering credible and meaningful reductions in the burdens that hinder hard-pressed businesses and charities. We have to create a common sense approach in the way we think about new laws.

He concluded: “By ensuring regulation becomes a last resort, we will create an environment that frees business from the burden of red tape, helping to create the right conditions for recovery and growth in the UK economy.”

Crystal Umbrella welcome the proposed changes to NMW regulations as of January 2011.

Obviously, any increase in NMW is a good thing for the temporary labour market.  Not only will it go a long way in protecting the vulnerable sectors of the temporary labour market, but it will also allow them to receive full entitlement to state benefits (based on National Insurance Contributions).

For contractors, freelancers and locums currently earning NMW greater clarity is given around the claiming of travel (to temporary workplace) and subsistence expenses as they will not count as pay for NMW purposes. This area has been a concern and one that Crystal has campaigned for a long time.

Crystal Umbrella see this as a step in the right direction and a way of protecting those that need it, whilst providing an environment suitable for providing a level playing field within the contracting and freelance market

The Financial Services Authority have confirmed the end of the self-cert mortgage, confirming that self-employed individuals will be subject to an “affordability test” prior to being accepted for a mortgage.

The FSA said that everyone must be able to prove their ability to repay a mortgage. They conceded that those contractors and freelancers whose income can be irregular may “have to wait longer before applying for a mortgage.” They also confirmed that it will be the individual’s responsibility to “gather a track record of [their] income”. It is likely that each individual will be expected to prove their income over the previous three years.

The FSA pointed to the level of arrears amongst self-employed individuals and freelancers as the reason for the end of these non-income evidenced mortgages. The FSA director for the mortgage market, Lesley Titcomb: “While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”

The new proposals are currently under consultation, with this period due to end in November. Other changes include self-employed individuals and contractors being restricted in their borrowing if they have a poor credit rating.

The FSA concluded: “While non-income verified mortgages were originally aimed at niche audiences, such as the self-employed or the lowest risk applicants, they gradually became more widely used…stringent criteria may have originally been applied to such applications, for example in terms of loan-to-values, these criteria were relaxed over time.”

The coalition recently announced an immigration cap which has been met with some criticism. Now the Association of Professional Staffing Companies (APSCo) has stated that the cap will do little to reduce the number of non-EU IT workers who come to the UK. This is because the cap proposed by the government is exclusive of the intra-company transfer scheme which allows companies to transfer in workers from bases they have in other countries if that worker has skills which are not available in the UK.

APSCo said that figures show these intra-company transfers are responsible for over 80 per cent of foreign IT workers who come into the country on work permits. APSCo believes that there should be tougher rules governing these intra-company transfers.

Their chief executive, Ann Swain, said: “More than 80 per cent of non-EU IT workers coming to the UK on work permits are intra-company transfers, so if the Government doesn’t look at this issue, the cap will be little more than an empty gesture.
“APSCo has consistently argued that employers using intra-company transfers (ICTs) should be audited more rigorously to ensure workers being brought in are not undercutting UK market rates. The UK Border Agency, which has responsibility for enforcement, could do much more to investigate alleged abuses of the system.
She concluded: “We would prefer tightening up the intra-company transfer rules rather than an outright cap. A cap would be unwieldy and unresponsive to the market. What if an employer cannot fill an urgent, niche requirement but the cap on intra-company transfers has already been reached? The new rules will stop small UK-owned IT businesses from plugging skills gaps, but won’t stop IT giants with global office networks from bringing staff to the UK on an industrial scale.”

The Law Society has warned that small and medium sized enterprises (SMEs) could do more to avoid cash problems caused by late payment from customers. It is expected that the forthcoming increase in VAT will cause further problems for cash strapped businesses.

The Society have said that there are safeguards available to protect against blocks in cash flow but they are currently being overlooked.

Robert Heslett, president, advised: “Average commercial debts caused by late payments are high in the UK, and for SMEs a lack of cash flow can be crippling. With credit less available to those businesses from banks, late payments have a far more serious consequence for SMEs. Considering the amount of red tape SMEs and start-ups are faced with, it is no surprise that seeking protection against late payment from customers does not come top of the to-do list. However, it could be the difference between the business surviving or not, especially in the uncertain economic climate.

He continued: “A carefully worded contract drawn up by a solicitor between a business and their commercial customers can include clear terms on late payments, including penalty clauses and strict time frames for payment. Such terms can act as an effective deterrent for late payment and encourage timely payment for services, thus avoiding these terms coming into play.”

Mr Heslett concluded by advising SMEs they have options other than court when customers fail to pay up. He said: There is a presumption that going to court is the only course of action when late payments cannot be resolved. However, many solicitors specialise in ADR and mediation, which can prove an effective way of solving the problems for SMEs and other businesses. ADR and well-drafted contracts can be effective in avoiding the last option, going court.”

There has been an announcement that only 24,100 work visas will be issued to non-EU migrants for the remainder of the financial year. Just last week the Director General of the British Chamber of Commerce, David Frost, raised concerns regarding the proposed migration cap and the effect it could have on contractor opportunities. He said that the government had to strike a balance between limiting the number of non-EU nationals entering the UK while also taking into account the needs and views of UK-based businesses, especially as such restrictions could result in skills shortages.

Now, IntaPeople recruitment firm have waded into the argument and they agree with Mr Frost. IntaPeople Operations Director Phil Handley commented: “There is a concern that a cap like this could prevent exceptionally skilled migrants from outside the EU entering the country. With current unemployment figures so high, it may seem sensible looking for candidates closer to home but it is not as straightforward as this.”

He concluded: “We have handled a number of key IT positions that would not have been filled had it not been for the experience and knowledge of some of these workers. We therefore welcome the decision to hold a consultation on the matter, and hope that the Government can devise a more localised approach, so that areas suffering from skills shortages can still recruit the talent they need.”

Due to such pressure, Home Secretary Theresa May has confirmed that she will consult on this issue over a 12 week period before any final decisions are made.

The first meeting of the cabinet committee whose aim is to cut through the red tape for businesses has taken place, chaired by Vince Cable Business Secretary. The Reducing Regulation Committee has begun its formal business by launching a review of regulations which have yet to be ratified having been introduced by the Labour administration.

Other members of the committee include Small Business Minister Mark Prisk, Cabinet Office Minister Francis Maude and Chief Secretary to the Treasury Danny Alexander.

Mr Cable, chairing the meeting stated: “As the Deputy Prime Minister said, we need to change the balance of power away from the state and back to individuals, businesses and communities. For too long, there has been a misplaced notion that Government’s job is to regulate. That is not the case. Regulation should be the last resort. This committee, along with the new ‘challenge group’, will help change the culture of Government and find new ways of solving problems, reducing the red tape that is strangling enterprise.

He continued: “We need businesses to drive the growth our economy needs, not be tied up with form filling, and the Government is determined to do all it can to make that happen.”

All proposed regulations will come through this committee where they will be stress tested. Only those proposals deemed to be of a high quality and priority will proceed. They will also operate on a one-in, one-out system to ease the burden of too many regulations.

Dell has become the latest company to find themselves in the Forum of Private Business’s payment league table which serves as a ‘hall of shame’ for those companies whose payment terms are deemed unacceptable by FPB.

Dell suppliers have received communication to inform them that they will now face an additional 2 weeks waiting time before invoices are settled. This means that suppliers will now have to wait a total of 65 days before they receive payment. The communication stated that the “current economic conditions” were forcing the company to “standardise” payment terms for all of their “valued” suppliers.

The government has been striving to ensure that small firms have their invoices settled promptly but Dell’s decision is completely at odds with this. The FPB commented: “When they receive a letter like this, smaller suppliers have no choice but to agree and stay silent.”

One of the suppliers who received the communication stated: “As a ‘valued’ supplier of IT services to Dell I was dismayed to receive this notice via email regarding a change to their payment terms. Ironically, the reason for the change is apparently due to the current harsh economic climate. How is extending payment terms beyond the current draconian 50 days to 65 days going to help Dell’s legion of ‘valued’ SME suppliers, particularly when most of our suppliers demand 30 days net?”

FPB concluded: “Small businesses continue to suffer from the blight of late payment, which devastates cash flow and forces firms into administration. Companies like Dell have a responsibility to pay promptly – failure to do so can mean the whole supply chain seizes up.”