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Tue September 17 2019

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Mixed reaction to late payment clampdown proposals

20 Jun The government has published further proposals on tackling the curse of late payment in industry – and received a mixed response.

The Department for Business, Energy & Industrial Strategy (BEIS) has set out new measures aimed at protecting smaller businesses from late payments. Following a consultation process last year, it has now set out three main elements are:

  • Company boards will be held accountable for supply chain payment practices for first time
  • New powers for Small Business Commissioner, an office set up by government in 2017,  to tackle late payments, including fines and binding payment plans
  • A new fund to encourage businesses to use technology to simplify invoicing, payment and credit management

Company boards will now be held accountable for payment practices to small businesses within their companies in a drive to increase transparency and accountability on late payments. Measures will force audit committees to report payment practices in company annual reports.

The government will consult on strengthening the powers of the Small Business Commissioner to hold to account those larger businesses that fail to make payments on time. New powers could include compelling information and disclosure of payment terms and practices, imposing financial penalties or binding payment plans on large businesses found to have unfair payment practices.

Responsibility of the voluntary code of best practice, the Prompt Payment Code, will be moved to the Small Business Commissioner. The legislation will allow for the prosecution of large companies that do not comply with the payment practices reporting duty.

Minister for small business Kelly Tolhurst said: “These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly – ending the unacceptable culture of late payment.”

Shadow minister Bill Esterson said: "In broadly welcoming these measures, I hope that the government's delivery matches the rhetoric."

Industry reaction

There was a mixed reaction from the business sector, with some notable scepticism from the construction lobby.

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Federation of Small Businesses chairman Mike Cherry said: “Small businesses will be delighted with today’s announcement. FSB has worked very hard with government to create a whole-board approach to late payment within the UK’s large companies, and empower Audit Committees to look after the supply chain. Together with measures to strengthen the Small Business Commissioner’s powers and reform the Prompt Payment Code, the measures today could finally see an end to poor payment practice. Changing our business culture will boost the small business community, productivity and growth.”

The Specialist Engineering Contractors (SEC) Group said that it had hoped that BEIS would proceed further with making the Prompt Payment Code mandatory and reducing the maximum payment terms to 30 days (currently at 60 days), in accordance with the Public Contracts Regulations 2015.

SEC Group also wants legislation to mandate the use of project bank accounts (PBAs) and ensure that retention monies are secured in a separate trust account or scheme.

The National Federation of Builders (NFB) said that the proposals, while welcome, would actually do little to improve the situation of construction companies on the ground.

NFB chief executive Richard Beresford said: “Despite changes to the Prompt Payment Code, 50,000 businesses fail every year because of late payment. Even the department for business admitted that payment times are getting longer. How many more businesses have to go under before we make late payment a thing of the past?”

Nick Sangwin, NFB national chair, added: “These proposals for consultation will further expose the failure of the government to tackle late payment. It’s time to do the right thing and kill off late payment, rather than kicking the can down the road once again. Today’s announcement does not help small construction businesses who are about to go under because they are owed money. Nothing has changed for SMEs.”

The Federation of Master Builders (FMB) also thinks that the government proposals could go further. FMB chief executive Brian Berry said: “The government’s acceptance there is a serious imbalance of power between small and large companies when it comes to securing fair payment terms is a step in the right direction. FMB members are telling me that more than three quarters of their payments are late, which is clearly unacceptable. What is needed is a culture change in the construction industry so that late payment is no longer standard practice. Fundamentally, to rebalance market power for small to medium-sized companies (SMEs), the public sector should lead by example by breaking up contracts into smaller ‘lots’ and desist from the wholesale ‘bundling’ of contracts. This will help SMEs to act as the principle contractor. By introducing more competition into public sector procurement in this way, payment terms will improve as the balance of power is restored.” He added: “What is encouraging is that that the consultation responses echo what we already know from FMB members, that the Small Business Commissioner isn't being marketed enough.”

Small Business Commissioner Paul Uppal said: “During the first 16 months of my post I have been struck by the trepidation felt by small businesses when talking about late payment with their large suppliers. The government has a range of measures in place to tackle late payment and this consultation is a further step in the right direction to protect and support small businesses. I welcome any additional provisions which will strengthen the influence my office has in tackling poor payment practice and levelling the existing playing field.”

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