New measures proposed to tackle late payments to small businesses

The government has announced a package of reforms aimed at tackling late payments to small businesses, including new enforcement powers, mandatory interest on overdue invoices and limits on how long larger companies can take to pay their suppliers.

Carly Davies, our Debt Recovery Manager provides an update.

The changes would give the Small Business Commissioner new authority to investigate payment practices, resolve disputes and impose financial penalties on companies that repeatedly pay late. According to the Department for Business and Trade, fines could reach tens of millions of pounds for persistent offenders.

Late payment remains a significant issue for smaller firms. The government said it costs the UK economy around £11 billion each year, with some businesses waiting months or longer to be paid for work already completed. It added that dozens of businesses close each day where cash flow is affected by delayed payments.

Under the proposals, large companies would be required to pay smaller suppliers within a maximum of 60 days. Commercial contracts would also have to include statutory interest on overdue payments, set at 8% above the Bank of England base rate. This would apply automatically where invoices are not paid on time.

The measures also include plans to require company boards or audit committees to explain poor payment performance and outline steps being taken to improve it. In addition, the government said it intends to consult on banning the use of retention payments in construction contracts, a practice that can leave smaller firms exposed to non-payment if a contractor becomes insolvent.

The proposals would require legislation and are not yet in force.

Business Secretary Peter Kyle said: “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.”

The proposals build on existing legislation, including the Late Payment of Commercial Debts (Interest) Act 1998, and are intended to strengthen enforcement and improve cash flow for small businesses.

The move by the government is welcome but it has to be said that previous administrations have made similar announcements and yet the problem of late payment remains.

We shall keep clients informed of developments.

If you would like more information about the issues raised in this article or any aspect of insolvency, debt collection or credit control please contact Carly on 01228 516666 or click here to send her an email.