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Small Business Commissioner Consultation

Saturday, 1st April 2023

Registry Trust Consultation Response.

Introduction

This statutory review invites views and evidence from stakeholders on the performance of the Small Business Commissioner. As required by legislation, this statutory review will particularly examine the Commissioner’s effectiveness in carrying out the functions of the office. Specific questions are set out at the end of this document.

This statutory review forms a part of the wider payment and cash flow review, examining business payment performance, payment culture and behaviour, and Government’s role in promoting prompt payment by businesses.

This is a challenging time for small businesses. As part of our support, Government has been proactive in attempting to stamp out the worst kind of poor payment practices to support small businesses who are least able to cover financial shortfalls and find temporary finance more difficult and more expensive to obtain. However, late payment remains a significant problem for small businesses across the UK.

Evidence from a previous call for evidence suggested existing SBC powers were seen by many as being insufficiently strong. We know that the Commissioner is investigating a smaller number of complaints than expected, and the Commissioner has been prevented from acting on evidence of poor payment practices because some small businesses have wanted to avoid conflict with significant and influential customers. That said, we know the Commissioner handles numerous enquiries, and every complaint the Commissioner deals with represents support given to a business in a challenging situation – potentially enabling their long-term survival and growth.

In reviewing performance, we will consider the SBC’s effectiveness in carrying out the Commissioner’s functions, looking particularly at the impact of their work on improving payment practices in commercial transactions, and awareness and use of alternative dispute resolution procedures among small businesses. As part of this review, we will also consider the governance relationship between the Department and the SBC and whether there is scope for a more efficient, effective arrangement. As such, we are also seeking stakeholder’s views and evidence on where the balance should lie between maintaining the Commissioner’s independence and ensuring a proportionate, flexible, and effective governance relationship between the SBC and the Department. We are also interested in feedback on whether the SBCs function is sufficiently clear.

Thank you for taking the time to respond to this invitation to give evidence and views.

General information

Why we are consulting

Under section 10 of the Enterprise Act 2016, we are required to conduct a statutory review on the Small Business Commissioner’s performance, particularly their effectiveness in carrying out their functions.

In line with the legislation, we are also looking at the impact of the Commissioner’s work on:

improving commercial payment practices and

small business’ awareness/use of alternative dispute resolution.

Due to the COVID-19 pandemic delaying the originally planned statutory review, we are seeking input from stakeholders in relation to the whole period of time since the SBC’s establishment, that is, including the original statutory review period (ending 31st March 2020) and to date.

Consultation details

Issued: 15 February 2023

Respond by: 28 April 2023

Enquiries to: responsiblepaymentculture@beis.gov.uk

Consultation reference: Statutory Review of the Small Business Commissioner

Audiences: We are seeking views from all those with an interest in the Small Business Commissioner’s work and its effectiveness. This includes, but is not restricted to, large, medium, small and micro businesses and business representative groups.

Territorial extent: The Office of the Small Business Commissioner covers England and Wales, Scotland and Northern Ireland

How to respond

Please respond via this online form

When responding, please state whether you are responding as an individual or representing the views of an organisation.

Your response will be most useful if it is framed in direct response to the questions posed, though further comments and evidence are also welcome.

Background

The Small Business Commissioner (SBC) is an arm’s length body of the Department for Business and Trade established under Part 1 of the Enterprise Act 2016.

Launched in December 2017, the Commissioner leads an operationally independent office, providing support to small businesses especially in relation to the issue of payment disputes with their larger business customers, including what action to take if a payment is overdue. This can include general advice and information to small businesses in connection with their supply relationships with larger businesses, including signposting small businesses to existing support and dispute resolution services. Information and advice are primarily delivered through the Commissioner’s website, which any business can access.

The Commissioner also considers and investigates complaints from small businesses (those with fewer than 50 employees) relating to payment matters in connection with the supply of goods and services to larger businesses (those with 50 employees or more). Following investigation and consideration of the complaint, the Commissioner can make non-binding recommendations as to how the parties could resolve their disputes. Under existing legislation, the Commissioner can only investigate poor payment practice when a small business complains directly and when such a complaint conforms to the requirements of the Small Business Commissioner (Scope and Scheme) Regulations 2017.

The Commissioner also has the power to publish a report of the inquiry into, and consideration and determination of, a complaint. Upon consideration of the relevant factors, that report may name the larger respondent business. The report may highlight poor payment practices of the larger business and equally may praise good payment practices.

A key focus of the work of the Commissioner is to empower small businesses to resolve payment disputes with larger businesses and avoid future issues by encouraging a culture change in payment practices and how businesses deal with each other. The Commissioner does not have the power to proactively investigate poor payment practice, even when there is evidence or intelligence to suggest this is occurring.

We would be grateful for views of any stakeholders who have engaged with the Small Business Commissioner, or who have an interest in its operations. We are also seeking the views of the Small Business Commissioner.

Evidence and views received in response to this invitation will inform the findings and any recommendations arising from the statutory review. We therefore encourage stakeholders to provide supporting qualitative and quantitative evidence where possible. Responding to specific questions at the end of this document as much as possible enables us to gather and compare information from a range of respondents.

We will publish a report of the review’s findings as part of the wider payment and cash flow review.

Potential outcomes

We will objectively conduct the review to gather evidence to inform the best way forward, without pre-judging the outcome. Possible outcomes may include:

The SBC is judged to be broadly effective.  A decision would then be required on whether to proceed to strengthen the powers of the SBC, in order to enhance effectiveness further.

The review finds that the current functions delivered by the SBC could be made more efficient and effective, perhaps by being joined-up with other similar functions.  For example, strengthening the delivery of functions may be achieved through a different organisational approach.

The review finds that the SBC is not judged to be sufficiently effective in carrying out the functions of the office, and Secretary of State concludes that the organisation should be wound up (with no action taken to replace the SBC’s function and responsibilities).

The role of the SBC will also be explored as part of the wider review and will also influence future policy interventions.

Wider policy landscape

The establishment of the Small Business Commissioner and the complaints scheme operated by the Commissioner are part of several Government interventions to tackle late payments in business-to-business relationships.

This includes:

  • Late Payment of Commercial Debts (Interest) Act 1998
  • Prompt Payment Code (also administered by the SBC): signatories commit to paying 95% of their invoices from smaller businesses within 30 days
  • The Reporting on Payment Practices and Performance Regulations 2017 [footnote 1]

In addition, the government has made a commitment to pay 90% of SME invoices within 5 days and 100% within 30 days. A Procurement Bill, currently making its way through Parliament, will ensure 30-day payment terms in contracts throughout the public sector supply chain (subject to Royal Assent).

Independence and organisational status

The SBC has separate legal personality as a corporation sole and was set up as a Non-Departmental Public Body because this was felt to be necessary to ensure the SBC’s independence.

We would be grateful for stakeholder views on the status of the SBC. Particularly, we would like views on whether other models of delivery (for example, more closely integrated to central government, or a different organisational form such as a government office) should be explored.

Questions to business and stakeholders

Respond using the Word form provided. When responding, please state whether you are responding as an individual or representing the views of an organisation.

How aware do you think businesses are of the role of the Small Business Commissioner? How aware would you say you are of the SBCs role as set out in this statutory review document?

We would imagine that trade bodies such as the Federation of Small Business (FSB) make an effort to raise awareness of the role of the SBC amongst its members. Similarly, we presume trade bodies such as the CBI would do the same for their members as part of their work to remind large businesses of corporate responsibility to smaller suppliers.

Nevertheless, the OSBC itself does report that it ‘is aware that only a small percentage of small businesses know about our service despite taking every opportunity for extensive self-promotion among small businesses and stakeholders to inform them about what we can provide.’ But, it is hard to say with any certainty just how aware businesses are of the role of the SBC due to the lack of availability of relevant research.

Have you had any interactions with the SBC

If yes,

  1. How often?
  2. Has your interaction with the Small Business Commissioner mainly been as a
  3. How satisfied are you with your dealings with the SBC?

Registry Trust is very aware of the SBC’s role. We are very aware of the issues the SBC covers and we engage with the SBC on a regular basis. Our trusted data plays an integral part in millions of lending and other economic decisions. We are keen to explore whether our role as a trusted data intermediary could be helpful in addressing other issues such as late payments to suppliers.

In your view, what impact, if any, has the SBC had on your business relationships (for example, with business suppliers or business customers), and/or business relationships between business suppliers and business customers in general.

We have not had cause to use the services of the SBC in the course of our own business.

With regards to relationships between business suppliers and business customers generally, we do think that, within the constraints of the rather limited powers and resources available to the SBC, it has performed an important role.

But, it is clear there is still so much more to do on issues such as late payments. For example, a recent survey commissioned by the FSB found that, on average in 2022, 52 percent of small businesses experienced late payments in the previous three months. Twenty five percent reported an increase in late payments in the previous three months Time is Money: Late payments ‘stifle’ small businesses, report shows | FSB, The Federation of Small Businesses

Late payments and long payment terms has an impact on: cash flows, profitability, ability to invest long term in the business; staff wellbeing; and, in some cases, the viability of businesses. The impact goes beyond the immediate supplier or business owners. It affects their staff, and other businesses in the supply chain. It has an effect on the wider economy. The SBC reports that if small businesses were paid on time, this could boost the economy by an estimated £2.5 billion annually. About us - Small Business Commissioner

Moreover, it is not just SMEs who are affected by late payments. Research by IPSE found that two-thirds of the self-employed have experienced payment delays. Half of the self-employed surveyed said they have completed work they were never paid for, and they spend an average of 20 days a year chasing unpaid invoices. The problem is getting worse. The proportion of freelancers who have not been paid for work completed rose from 43 percent in 2018 when IPSE last undertook the survey to 50 percent now. Pay Up: How to end late payment for the self-employed | IPSE

The mismatch between the scale of the challenge and the very limited powers and resources available to the SBC means it might not be appropriate to draw definitive unfavourable conclusions about the effectiveness of the SBC in its current form.

Do you think that resolving a complaint between business suppliers and business customers has become easier or harder since the establishment of the Small Business Commissioner? Why?

Again, there is very limited data available to allow us to say with any real certainty whether complaints resolution has become easier or harder. But, the limited data suggests the SBC is having an effect, even if that effect is so far quite limited. The numbers of visitors to the SBC website has grown considerably over the past three years – up from 56,245 in 2019/ 20 to 208,199 in 2021/22. This suggests that more small businesses are interested in finding out about how to make a complaint.

However, the numbers of small businesses actually taking this forward to enquire and make a complaint remain small at 261 in 2021/22. Nevertheless, even with these small numbers, over £0.25 million was paid to small businesses due to the efforts of the SBC. We think it is reasonable to presume that with greater resources and powers the SBC could help many more small businesses successfully complain and obtain redress.

What do you believe has been the impact of the SBC on payment issues?

As mentioned above, we do think that the SBC, with very limited resources, has had an impact both in terms of raising awareness of payment issues and dealing with complaints. Unfortunately, due to lack of meaningful data it is not possible to say what impact the SBC has had on the entities at the root of this problem, those organisations which continue to pay late.

As mentioned, the SBC has very limited resources and powers to effect change. Moreover, it appears that even when the SBC could have acted against late payers, some small businesses affected have been reluctant as they have wanted to avoid conflict with important customers.

In your view, is the role of the Small Business Commissioner sufficiently clear? How would you explain the role?

We think the role of the SBC is clear. Lack of clarity regarding the role is not the key issue here. We would suggest the main issue is that its role is limited, and the lack of resources to raise awareness of that limited role.

We would describe the SBC role as following:

  • Raising awareness of the rights small businesses have to take action on late payments
  • Providing advice and information to small businesses on their rights and options including signposting to other support and dispute resolution services
  • Considering and investigating complaints from small businesses, and making non-binding recommendations on how complaints could be resolved
  • Improving practices and behaviours on late payments by raising awareness of the issue, encouraging best practice, and deterring bad practice by publishing reports of its investigations and deliberations.

As mentioned, this role is limited. The SBC has limited resources. Its recommendations are non-binding (unlike say the decisions of the Financial Ombudsman Service (FOS). The SBC is very much not a regulator with a duty and necessary powers and resources to proactively monitor, supervise, and enforce against bad practice. It can only react when a small business makes a direct, eligible complaint.

How effective do you consider the SBC has been in exercising the powers of the office:

The SBC has very limited powers and resources. Given these constraints, we believe the SBC has performed well in terms of running a complaint scheme, and investigating reports when it can, providing general advice to small businesses, drawing attention to the issue and the effects of late payments in small businesses, and drawing attention to ADR options and approaches.

Again, we emphasise that we believe the SBC could have supported more small businesses and had a greater impact on corporate behaviours if it had additional resources.

But, as mentioned, the lack of comprehensive, relevant data means it is hard to say how effective the SBC has been (or might have been with greater resources) with any degree of precision.

For example, there is limited data on which organisations are repeat offenders. So, we are unable to say whether the complaints the SBC has been able to resolve were in connection with the worst offenders. Similarly, we do not know much about the profile of small businesses seeking information and advice from the SBC. Are these from sectors of the economy that are worst affected by late payments practices?

However, the data does strongly suggest that there is a serious mismatch between: i. the scale of the late payments problem; and ii. the number of small businesses taking action and the resources available to the SBC. What limited research there is suggests that around half of small businesses are experiencing late payments yet only 261 small businesses have made an enquiry about or taken forward a complaint.

What else could the SBC do to improve payment culture?

If the serious problem of late payments is to be properly addressed, the root causes of must be addressed. The root cause are:

  • ‘demand side’ weaknesses ie. the lack of awareness of the SBC and its role; the low propensity for small businesses to seek redress; low levels of confidence, capability, and determination amongst small businesses to see complaints through; and the fears that making a complaint will not result in positive action or even an adverse response from powerful customers;
  • the imbalance in power between larger organisations and smaller suppliers;
  • the approach to corporate governance and culture within certain larger organisations; and
  • the lack of scrutiny and transparency with regards to the behaviours of these organisations.

This points towards the need for:

  • tougher obligations and corporate social responsibilities being placed on organisations;
  • a better resourced SBC (or regulator) with the powers to intervene to address adverse practices and act on behalf of those affected by late payments; and
  • better data to allow the worst, persistent offenders to be identified and effective interventions to be targeted.

The SBC in its current form with its current powers could be given greater resources. This could obviously allow the SBC to make a bigger impact on improving payment culture. But, we would argue that if we want to see a significant improvement in payment culture, greater resources for the SBC would not be sufficient. Greater resources would need to be supplemented with greater powers to embed higher standards of corporate social responsibility and target the worst practices and offenders.

Moreover, more comprehensive, relevant, and timely data is a prerequisite for any significant improvement in payment culture and better targeting of interventions on the worst practices and offenders.

The SBC receives fewer complaints than expected. What do you consider are the primary reasons why small businesses tend not to raise complaints with the SBC?

Please indicate what you think is the most important reason, and also tick all other reasons that you think apply:

It is difficult to say what are the primary reasons, or rank those reasons, without conducting more in depth research with affected small businesses.

There is a paucity of research into the behaviour and attitudes of small businesses with regards to complaints and redress schemes. But, drawing on research into consumer behaviours and attitudes, we would say the main factors that determine the number of complaints received by the SBC are:

  • Levels of awareness of the SBC and its role amongst the general small business population and amongst those affected by late payment (those small businesses affected are a subset of the general business population)
  • The attitudes of business customers who the cause of late payments (contrast this with the requirements placed on regulated financial services firms to inform consumers of their rights to take a complaint to the FOS if they are unhappy with how the firm has dealt with a complaint)
  • The propensity of those affected to make a complaint
  • The confidence, capability, and determination of those affected to make a complaint and see the complaint through
  • The perception amongst those affected that making a complaint will be worthwhile, that the SBC is willing and able to make a difference
  • Confidence that making a complaint will result in a net benefit, that there will be no adverse consequences

To improve the ‘demand side’, that is to increase the number of small businesses coming to the SBC, each of those factors would need to be addressed.

But, in terms of the main barriers, amongst the general small business population, we would say that the primary reason is likely to be lack of awareness of the SBC and its role. Reasons ‘b’ and ‘c’ listed above are linked to levels of awareness.

However, amongst those who have been affected by late payment and who are aware of the SBC, we would say that the primary reasons are likely to be fear of some sort of penalty from the business customer and a perception that the amount of effort required to pursue a complaint would not be worth it.

Would the introduction of broader powers for the Commissioner to investigate issues on their own initiative, or as a result of anonymous information, help address the late payment issues faced by small businesses?  What else would encourage you or business in general to raise an issue with the SBC?

Yes. As outlined above, there are a number of factors (or barriers) which need to be addressed on the demand side to encourage more small businesses to approach the SBC. But, clearly, the SBC could be provided with more resources and powers to proactively investigate issues.

Please provide any additional feedback on the scope of the SBC’s powers, including the extent to which you consider it enables or restricts the SBC to fulfil the Commissioner’s purpose.

The available data does strongly suggest that there is a serious mismatch between the number of small businesses who:

  • are affected by the late payments problem; and
  • have the problems they experience remedied.

This gap leaves a significant amount of financial and other detriment harm caused to the small business sector left unremedied. The factors which create this ‘detriment gap’ are outlined above.

Measures are needed to:

  • help greater numbers of small businesses obtain the redress they are entitled to by addressing the ‘demand side’ factors outlined above and improving the complaints and redress capacity of the SBC (or an alternative agency); and
  • directly address the corporate behaviours which are the primary reason for the late payments problem.

No doubt, with the right resources more could be done to raise awareness of the SBC and improve small business confidence and trust in the complaints and redress system. This could help address the demand side of the problem so that more small businesses proactively obtain redress. This could close some of the detriment gap.

But, making significant progress into closing the detriment gap means addressing what is clearly a serious governance and cultural problem amongst a section of the large business sector of the economy.

In other areas of economic life where significant detriment occurs, government has established complaints/ redress schemes to help those affected and regulators (or agencies) to address the corporate behaviours which cause that detriment.

The scale of the late payments problem and the detriment gap suggests to us that a similar approach is needed to protect the interests of small businesses. Improving the capacity of the SBC to encourage and handle more complaints and enable redress would be progress.

But, closing the detriment gap is likely to require a regulatory agency with the powers, duties, and resources to: mandate tougher standards of corporate social responsibilities; proactively monitor corporate performance against tougher standards; and enforce against adverse behaviours and practices and breaches of standards.

Drawing on lessons from other sectors of the economy, new powers might include:

  • mandatory reporting of payment data by larger businesses to the agency;
  • giving the agency powers to proactively investigate payment policies and practices of larger businesses;
  • giving the agency powers to publish data, reports, and performance ratings of larger businesses payment performance;
  • making the agency’s decisions on complaints and redress brought by individual small businesses binding on larger businesses;
  • giving the agency the power to require businesses to institute redress schemes where payment practices have affected multiple small businesses; and
  • providing the agency with powers to sanction offenders.

It is of course for government to determine whether the scale of the problem requires such a response and whether the SBC with enhanced powers or a new agency would be the most appropriate structure.

However, regardless of which approach the government adopts in future (even if its response is restricted to enhancing the complaints and redress capacity of the SBC) a priority is producing better data to allow the worst, persistent offenders to be identified and effective interventions to be targeted.