Tackling late payment problems has been like a hardy perennial. Whatever the season, there it remains, as leafy and thorny as ever. So it is right that the London market should, if a little belatedly, try and cut it back.
The government tried to trim down late payment in the world of mainstream commercial business with its Late Payment of Commercial Debts (Interest) Act, which first came into force in November 1998. From the first day, small businesses were able to claim interest (at 8% above base rate) on all debts over 30-days old (with some exceptions) from larger firms and the public sector. The act was introduced in tranches. From November 2000, small businesses could claim the same interest from all businesses – and would have to pay it if they were late payers, too. From November 2002, the big businesses, which have been liable to pay late payment interest, will also be able to claim it, even from one-man-band artisans.
It is reasonable to argue that this phased introduction was unfair on big firms, and that the act should have applied to everyone. The trouble with the London market equivalent is that it will work the other way round. And that is even more unfair.
Demanding tougher payment terms is right. But the reality is that those demanding payment will enforce it on the smaller brokers. If Marsh and Aon and the tier of firms below them simply fail to pay, or even flatly refuse, which of the managing agents will really withdraw agencies? It will be a brave – or foolish – underwriter who is the first. Meanwhile, smaller firms will be punished.
The issue is market-wide, and requires a market-wide solution. The Lloyd's Market Association put brokers' noses out of joint by not discussing the issue first. It should rectify that immediately. And if the big brokers still won't play ball, managing agencies should have a united – and forceful – response.
Stamp out late payment, but stamp it out fairly and across the board.