UK small businesses are owed up to £12,000 (on average) individually due to late payments. Geoff Brown the Victorian small business commissioner talks about how his office intervenes.
As all businesses know, managing cash flow is one of the hardest things to balance. Businesses are wasting countless time chasing overdue invoices from their partners, clients and customers who try to negotiate a term that better suits their personal preference – this causes finding cash to alleviate a struggle, especially during slow and quiet months.
Due to late payments, small businesses could be entitled to £12,000 each, overall this works out as £55bn across the country. Approximately 23% of small to medium-sized businesses have had to question insolvency because of payment issues according to Sage.
Westminster are now committed to challenge the issues, Anna Soubry the small business minister has commented by saying;
“They will tackle the imbalance of bargaining power between small suppliers and large customers, and encourage them to get round the table.”
The Federation of Small Businesses has explained that this move is a positive step, however, they are worried that the commissioner must have power for it to be successful.
The model has been developing across seas in Australia for the past 13 years (2003). Geoff Brown has been in charge of the Victorian small business commissioner office for almost 5 years now. The office was originally set up to support settling retail lease disputes. Currently, the cases are approximately worth 60% of the caseloads. Before complaints are considered for litigation it must go through Brown.
“They don’t have to come here but they can” he comments regarding the commercial disputes.
“We know if businesses engage with us (and I can’t force them to), we can settle nine in 10 cases without the need for litigation or arbitration.”
“Managing cash flow is probably one of the biggest challenges for any small or medium-sized business. And it’s particularly problematic when you’re in the middle or at the end of a contract chain. You go to your customer and say ‘Where’s the payment?’ and their response is ‘Well, I haven’t been paid yet.’ And so, the argument goes on.”
The office’s yearly report for 2014-2015 flagged that when it came to mediation the success rate was 88.7% (after Geoff Brown resolved one in four disagreements before the mediation starts). To receive the mediation service there is a fee charge of $195 (£105). Of the disputes that are not settled – approximately 50% will proceed to court “So we can probably claim the other 50% is a success as well,” Brown adds.
Brown is also satisfied with the feedback that has come back to the office, in fact during 2015, 1,000 feedback forms were sent back after just 800 mediation disputes. The feedback forms sent through produced a 94% satisfaction rating overall.
“So it’s seen as a fair service, a high quality service. It’s not a service where we advocate come high or hell water for the small guy against the big guy. To get engagement by businesses of all sizes, you need to be seen as independent and neutral. There are usually two sides to every story – not always, but usually.”
Brown continues to say;
“The fine print can contain some fairly ugly terms. Businesses sign these contracts and then have all sorts of problems when the fine print is read out to them. Have a dispute resolution clause in there so both parties know that if there’s a problem, this is what we’re going to do.
“The more you can be specific about what you’re going to deliver and how it’s going to look and feel, the better. Build a good relationship and communication with the customer, so if there is a problem you’re more likely to be able to resolve it effectively. Think about putting your work in stages and having progress payments.”
What is the most key factor of mediation? Opening yourself up to compromising.
“It’s a negotiation space. So, be prepared to negotiate in good faith. I can pretty much guarantee that in all of the mediations we deal with, neither party walks out having got what they walked in hoping to get. But they have come to an agreement that was acceptable to both of them.
“Compromise is a good investment. If mediation is unsuccessful, you’re going to have to go to court or tribunal.”