Late payment reforms offer hope for SMEs
The Government has unveiled its Small Business Plan aimed to support SMEs and unlock growth. This plan outlines their intention to tackle late payments, an issue which costs the UK economy £11bn a year and forces 38 businesses to shut down every day.
Richard Beresford, Chief Executive of the National Federation of Builders (NFB), said:
“As the Government has rightly recognised, SMEs employ 60% of the country’s workforce and generate £2.8 trillion in turnover. In construction, they train 8 in 10 construction apprentices. It is therefore promising to see the Prime Minister acknowledge the devastating implications late payments have on SMEs and the construction sector itself.
We cannot train enough skilled workers, drive business growth, retrofit our buildings, deliver infrastructure, and build 1.5 million homes in an environment where late payment and unfair terms are acceptable.”
Key announcements from the plan include:
New £4bn finance boost including 69,000 Start-Up Loans to inspire the next generation of entrepreneurs and small business owners.
Plans to introduce the toughest laws on late payments in the G7.
New laws expected to give stronger powers to the Small Business Commissioner to empower them to wield fines, worth potentially millions of pounds, against the biggest firms who persistently choose to pay their suppliers late.
The Small Business Commissioner will be given new powers to carry out spot checks and enforce a 30-day invoice verification period to speed up resolutions to disputes.
The introduction of maximum payment terms of 60 days, reducing to 45 days, giving firms certainty they’ll be paid on time.
Audit committees, under the proposals, will also be legally required to scrutinise payment practices at board level, placing greater pressure on large firms to show they’re treating small suppliers fairly backed by mandatory interest charges for those who pay late.
The Department of Business and Trade (DBT) has published a public consultation to seek views on the proposed legislative measures which defines late payments as:
Late payments: Where business fail to pay on invoice within agreed payment terms (30 days where no specific terms have been agreed).
Long payment terms: Where payment terms are agreed over extended periods, beyond 60 days).
Disputed payments: Where businesses disagree over the goods or services supplied and payment is delayed or reduced.
Unfair practice around retention payments: Specific to the construction sector, where retained money can be lost through upstream insolvency or subject to late, partial, or non-payment.
Beresford added: “The use and structure of retentions have become increasingly problematic and so alongside late payment, the construction industry has a fantastic opportunity to expose how the supply chain is propping up bad practitioners. Seven years on from the fall of Carillion, we may finally see an end to these industry destroying practices.”
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