Does naming and shaming customers who pay late actually work?

28/01/2020

With many of the initiatives to tackle late payment focusing on naming and shaming those who pay poorly, we consider whether this tactic is working.

When it comes to tackling late payment many believe that naming and shaming poor payers and publicly praising those who pay fairly will create a culture where late payments are seen as economically and socially irresponsible.

So is it enough to force change?

Naming and shaming campaigns

Naming and shaming is an idea we’ve seen a lot in the business world over the years.

Amongst others, name and shame campaigns have outed businesses paying under the minimum wage and serial tax avoiders.

In these instances, there has been public outrage at the named offenders and they’ve been forced to clean up their act.

Yet when it comes to late payment, previous name and shame campaigns have appeared to make little difference.

The payment reporting regulations introduced in 2017 require all large businesses to report on their payment practices and performance.

Suppliers can then search these reports to see the average time it takes for a large business to pay its suppliers and the proportion of payments that it doesn’t pay on time.

This effectively forces businesses to name and shame themselves should they be bad payers.

It was hoped that this would increase transparency for suppliers and encourage the worst offenders to clean up their acts.

But it appears these measures have done little to change the way large businesses pay their suppliers.

Of the 1,447 payment reports filed to date this year, 15% (217) revealed that more than half of the business’s invoices were not paid within agreed terms.

More measures that identify poor payers

Similarly, the Prompt Payment Code (PPC) was strengthened and now has the power to sanction or expel those who’ve signed up but fail to comply.

When a signatory is removed the Board issues a public statement and a list of removed signatories is available on the Code’s website, naming and shaming those with the worst payment practices.

The latest statement, dated November 2019, shows 20 businesses were suspended for failing to pay suppliers on time.

It also revealed nine companies that were reinstated for demonstrating compliance.

Whilst the fact that some businesses have been reinstated shows that the suspension has encouraged them to improve their payment performance, it is still worrying the number of businesses that are failing to comply to the voluntary code in the first place.

Of the 35 signatories suspended in April and July 2019, only 11 have now been reinstated.

Also, the Forum of Private Business (FPB) has a Hall of Shame where they’ve singled out some of the UK’s biggest names for poor payment practices and offer other companies the chance to report bad business practices. 

So, why are the named and shamed still paying late?

With so many places publicly outing those who pay poorly, why is late payment still plaguing businesses across the country?

Many small businesses rely so heavily on larger companies that they feel forced to put up with poor payment practices.

It’s also clear that the naming and shaming campaigns only target the largest companies in the UK, when late payment is endemic across the UK and a culture that businesses large and small are adopting.

But are businesses using the tools available to them to highlight customers who pay late before they trade with them?

For years businesses have had the ability to credit check customers to see if they pose a risk to their business. Yet many fail to do so and put their business at risk of late payment and bad debt.

With this in mind, it’s likely that many businesses are failing to pay attention to these name and shame campaigns.

And, if businesses are failing to act on the information presented to them, it gives those who pay poorly more power to continue to do so.

What can be done?

Some have called on the government to toughen the consequences for failing to pay on time.

Others have suggested making the Prompt Payment Code mandatory.

But, whilst these would both likely be welcomed, the onus remains on businesses to use the tools available to them to protect themselves.

Whilst late payment remains common it is vital that all businesses research their customers before trading.

Always perform a credit check and check online resources such as the payment reports and the Prompt Payment Code to analyse their payment performance. If this research reveals a history of poor payment it’s unlikely that they’ll pay on time now.

Could your cash flow survive if they don’t?

If not, you may not wish to proceed with their order. Or, you could consider taking full or partial payment upfront.

If you do go ahead with the order make sure your terms and conditions are clear from the outset.

By setting these at the start of your business relationship you ensure that both parties are on the same page and know what is expected.

Be sure to also include details of your procedure in the event of late payment. This can include charging interest, outsourcing the debt or taking legal action.

Often this is enough to show that you take late payment seriously and encourage the customer to pay on time.

What do you think? Do these name and shame campaigns actually work? Or is more needed to encourage a culture change?