The Government has today unveiled its ‘toughest crackdown on late payments in 25 years’ – but Staffordshire’s business community has warned that action must follow.
An announcement this morning reveals the largest set of reforms in over a generation with the Small Business Commissioner given new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders – with fines worth tens of millions for firms that persistently pay late or fail to comply with the new laws
According to Government research, late payments cost the UK economy £11 billion every year, and some 38 businesses shut their doors every day because they are not paid on time – the equivalent of 266 a week.
A Daily Focus poll in October showed 93 per cent of respondents have been impacted by late payments.
The Government says the new measure will be the toughest in the G7 and build upon and strengthen legislation on late payments, first laid out in the 1998 Late Payment of Commercial Debt Act, over 25 years ago.
The changes will include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at eight per cent above the Bank of England base rate.
The Government proposes to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms losing retentions to insolvency or non-payment.
Boards or audit committees of persistently late-paying large companies will also be required to publish explanations for poor payment performance and the actions they are taking to address it.
Business Secretary Peter Kyle said: “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.
“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”
Reacting to the announcement, Declan Riddell, policy adviser at Staffordshire Chambers of Commerce, said: “We clearly welcome the ambition to crack down on the scourge of late payments but we’ll be watching closely to see if this ambition is matched with the necessary action to clamp down on the issue.
“Late payments isn’t just an inconvenience, it results in lost time in chasing for payment to be made and in some cases, leads to complete business collapse.”
Edgar Blazier, founder and director of Stoke-on-Trent consultancy firm SYTECH, is a long-standing advocate for the call to tackle late payments.
He has previously proposed a 10-year plan requiring accounting software to accumulate contingent late payment interest liability over a six-year period as a part of each supplier record. This would then form a declaration within accounts at Companies House and figures for an individual supplier to be made available on application to the Court.
Edgar says the latest announcement is not enough to suggest eradication of late payment in the coming years.
He said: “While an accumulated sum could be worthwhile, for a single invoice, however, the effort and inconvenience involved are simply not worth it. The more important outcome would be encouraging late-paying suppliers to change their behaviour.”
