Tackling late payments

It is common knowledge that late payments and long payment terms can cause SME’s endless problems. The Government has been investigating how this issue can be addressed.

The BEIS Committee published a report in December 2018 on the productivity problem and other issues facing SME’s. The report entitled "Small businesses and productivity" made certain recommendations around late payments, including:

  • The Government needs to require all medium and large companies to sign the Prompt Payment Code and quickly adopts a statutory limit of paying within 30 days;
  • Government should widen the current payment reporting requirement to include more businesses;
  • Government should legislate to give the Small Business Commissioner powers to fine companies who pay late, require the Commissioner to publish an annual survey of SME’s on companies who pay late, and expands the remit of the Commissioner to cover construction SME’s;
  • Considering whether mandatory interest on late payments should be introduced.

The Government has now responded to this report. In relation to late payments, it makes reference to existing late payment solutions, including the Late Payment of Commercial Debts (Interest) Act 1998, the Prompt Payment Code and the Small Business Commissioner but unfortunately it does not include any new practical measures on payment practices to SME’s.

There may still be some good news for SME’s on this topic. The Chancellor has announced in the Spring Budget that the Government is going to tackle late payments. As part of its plans large companies will be required to set up audit committees, led by a non-executive director, to report late payment practices.

The FSB has been campaigning on this topic on behalf of SME’s for years. Mike Cherry, FSB Chairman responded to the Statement:

“At a time of great uncertainty, the Chancellor has shown today that there is still plenty of scope to support the UK’s small businesses. Poor payment practices by big businesses towards their smaller suppliers are rife and pernicious, leading to the closure of 50,000 small firms a year.

“Four out of five small businesses have been paid late, and we told the Chancellor that today was the moment to act, to tackle this scourge once and for all.

“The commitment from the Chancellor that the Business Secretary will see this through is welcome, and we are especially pleased that the first measure has been announced – to make a Non-Executive Director responsible for the supply chain through the Audit Committee of every large business, and to report back through the Annual Report on their progress.

“The end of late payments could finally be in sight. It can’t come soon enough, to bolster small businesses at a time when they are in great need of support and a lift in confidence.”

FSB members have access to a range of business legal support services. Ring the Legal Advice Line if you have any queries.