ARC welcomes the government review into late payment, but says more must be done

Following the consultation into payment terms last year ‘Building a responsible payment culture’ business secretary Vince Cable proposed last week that large companies will be required to publish information about their payment practices.

The review into this area and the idea that companies should be named and shamed is to be welcomed, says the Association of Recruitment Consultancies (ARC). However, it argues that more needs to be done.

Adrian Marlowe, chairman of ARC, said “for far too long larger organisations including local and government authorities have forced suppliers to accept lengthy payment terms for services provided and products delivered. It has also been the case that lengthy agreed payment terms have not been adhered to, with the same suppliers being left with the dilemma of deciding to wait for overdue payment, or to enforce the agreed terms. Many suppliers are loathe to take firm action for fear of upsetting or indeed losing the commercial relationship, and so interest is lost, cash flow is prejudiced and profits are negatively affected as expensive finance is taken up.

This is no more obvious than in the recruitment supply sector. We question why any company should be entitled to delay payment to a supplier where the supplier is of labour or individual services and payment is based on hours worked. The client has the benefit immediately and the work should therefore be paid for promptly. Delayed payment can wreck the livelihoods of workers as can the potential collapse of the supplier they work through.

We would therefore like to see more certainty and believe that this can only be achieved by regulation. We would also like to see the principle extended to recruitment vendors or recruitment process outsourcing organisations (RPO) which are involved in the chain of supply, such that they are obliged to pay their labour suppliers promptly and definitively without the ability to delay payment on a ‘pay when paid’ basis. Currently RPOs have no incentive to agree short or even certain payment terms, rather the converse.”

Referring to Mr. Cable’s indication that the government is also seeking to set up sector relevant codes of practice, Marlowe commented “whilst the idea of codes rather than strict regulations appears attractive, in the context of labour supply and RPO a code of practice has existed for several years and the evidence is that it has simply not worked despite the fact that a number of RPO companies did sign up to it. This area should be particularly singled out as the current rules are patently unfair. Agency regulations require the agency to pay the workers at normal payment times even though they have not been paid by the client, leaving the supplier agency at a severe disadvantage wherever lengthy or ‘pay when paid’ terms are imposed.”

ARC’s continues its campaign on this issue, which commenced in August 2011.

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