Never too late to say sorry

Rentokil Initial ought to have been the last company in Britain to provoke a storm over late payment. Its chief executive, Sir Clive Thompson, is president of the Confederation of British Industry, which champions the cause through its Better Payment Practice code. Rentokil’s FD, Christopher Pearce, chairs the FTSE-100 group and sits on the DTI’s better payment practice group.

Yet, in one fateful circular to its small business suppliers, Rentokil undermined its status as a champion of prompt payment and focused attention on the shortcomings of the Late Payment Act, which became law just 19 days ago.

Rentokil’s circular, dated 23 October, told suppliers that its payment terms would continue to be 60 days, and that it would pay interest at only 1% on balances outstanding for over 65 days. The Act, in contrast, says small businesses should be paid within 30 days and allows them to claim interest at 8% over base rate. The Rentokil circular added: ‘We are only prepared to conduct business with you on these terms following the date of this letter.’

More ultimatum than agreement

Under the Act, it is possible to opt out of the 30-day rule and the higher interest rate by agreement.

But Nick Goulding of the owner-managed business group Forum of Private Business, which lobbied for the late payment law, described the Rentokil circular as ‘more like an ultimatum than an attempt at an agreement’.

He added: ‘I do not think that it would stand up in law. Not only is it very clearly contrary to the spirit of the law, it almost certainly breaks the letter of the law too.’ He called on Thompson to resign as CBI president, accusing him of double standards.

Rentokil’s attempt to rescue its reputation from the furore which erupted after Accountancy Age broke the story last Thursday, also failed to satisfy small businesses. After a deluge of bad publicity on Thursday, a company spokesman appeared on Friday morning’s Radio Four Today programme to apologise for the ‘tone’ of the letter and to say it was being withdrawn. It later emerged, however, that Rentokil was sticking to its 60-day payment terms, and the only concession was that it would agree to pay more than 1% interest if small companies could show they had paid more than that for overdrafts to cover the outstanding debt.

Goulding welcomed the move as ‘constructive’ but added: ‘I still think Rentokil is shortsighted. They demand very tight payment terms from their customers and then insist on 60 days for suppliers. They should be setting an example rather than trying to get within the letter of the law while ignoring its spirit.’

The company accountant of one Rentokil supplier who received the circular also dismissed the ‘concession’. He said: ‘They’re still not complying with the terms of the Act, so it’s not a concession at all. I feel let down by the government. If it won’t enforce the Act, what’s the point in having it?’ Peter Clark, FD of Conrad Advertising, agreed: ‘It seems very Draconian to me. Rentokil is using the Act in a way it was not drafted for in the first place.’

More controversy ahead

But not all FDs think that Rentokil is in the wrong. Steve Boyd, FD of Golden Wonder, said: ‘Some of our suppliers have extended payments over 60 days. Under the Act, suppliers would suddenly lose 30 days’ interest. If supplies want Rentokil to move from the status quo they should offer it something.’

Richard Wilson, business policy executive at the Institute of Directors, said the impact of the UK’s late payment culture would be highlighted by a recession.

‘If companies go to the wall next year and claim it’s because of big business not paying them on time, it’s a big incentive to change,’ he said.

For Patrick Wadstead, head of insolvency at Kidsons Impey’s London practice, the importance of late payment in business failure is being overstated. ‘The greatest reason for failure in small companies is bad management,’ he said. Nevertheless, pressure is growing to ‘name and shame’ late payers.

The Federation of Small Businesses is planning to ‘out’ late payers among the UK’s top 1,200 companies next month. Alistair Summers, FD of shirtmakers The Savile Row Company, favours a more subtle approach.

He says companies should be required to state their average creditor days in their annual report. Whatever steps are taken the issue of late payment is unlikely to go away for a long time.

Related reading