ICSM Insolvency Business: Government’s New Fair Payment Code welcomed by ICSM’s Ian Carrotte but ‘it needs enforceable legal backing’ as the Business Secretary is grilled on Breakfast TV

By Harry Mottram: The Business Secretary appeared on the BBC’s Breakfast programme on September 19, 2024, to talk about the Government’s New Fair Payment Code aimed at cutting the problem of late payment. But Jonatham Reynolds MP had to defend the new code when quizzed by Charlie Stayt and Naga Munchetty.

Charlie Stayt questioned him on how large firms would show in their annual reports they were paying suppliers on time. He said: “Let’s take this step by step, so what is the time line from when they were asked to pay an invoice to when they paid it. So, what is that time line?”

The business secretary said: “There must be full transparency. It’s not just about giving rights, if you are a small business and have a bigger client, you may have the right but you can’t enforce it as the power balance in that relationship isn’t the same.”

Stayt said: “Suppose it’s supposed to be 30 days, and the company hasn’t paid in 30 days, transparency is one thing but anything changing is another thing. If they haven’t paid what then?”

The minister said: “Transparency is important, but there is already within UK company law significant penalties that can be levied against businesses that are not paying. But because there isn’t transparency some of those enforcement mechanisms are being used where a director could be fined. So, we are going to crack down on enforcement using those powers with the benefit of transparency.”

Naga Munchetty asked: “So you can’t enforce it until the report – so when does that happen?”

He said it would be enforced once the annual report was published and officials could see if the company was in breach of the rules on payment although this has to wait until next year when parliament passes new legislation. There is also a new Fair Payment Code which will reward companies with gold, silver and bronze standards on how they pay smaller firms. Finally, he said there would be a consultation on ‘a bigger legal change’ over the powers of the Small Business Commissioner and things that help audit companies in big public firms can be mandated to provide transparency.

Naga Munchetty asked: “Do you think a gold star is going to be enough? Already 52% of small firms suffer late payment and big companies are continuing to ignore payment rules.”

In reply he brushed off the question saying that the Federation of Small Businesses thought it a ‘brilliant change.” He said this was part of a reform that was needed and had been talked about for years but it would take time to bring about.

Ian Carrotte of ICSM said he welcomed the moves but said that the penalties for late payment such as fines should be far higher and enforced with more resources provided to prevent firms from ignoring the Fair Payment Code. He said: “This is a start but once the consultation takes place, we need rules that have enforceable legal backing so directors cannot wriggle their way out of their responsibilities. Only the threat of legal action, fines and in the case of fraud custodial sentences will force recalcitrant directors to do the right thing and pay what is due.”

The Government’s Business Department published on their website: “Under current laws, responsible directors at non-compliant companies who don’t report their payment practices could face criminal prosecutions including potentially unlimited fines and criminal records.   The consultation which will be launched in the coming months, will also consider a range of further policy measures that could help address poor payment practices. Every quarter, 52% of small firms in the UK suffer from late payments, meaning roughly 2.6 million small firms face this issue, with the Federation of Small Businesses describing it as one of the biggest problems facing SMEs.

“Late payments are just one element of the problem, with some SMEs forced to wait months for contracts to be fulfilled and some are even forced to take out loans against their own homes to manage cash flow. Cracking down on late payments will unlock growth for 5.5 million small firms by enabling them to invest their time hiring more employees, boosting wages, and exporting around the world, rather than chasing down late payments.”

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