ICSM Late Payment Business News: increased powers for the Small Business Commissioner welcomed
By Harry Mottram: The Government has increased the powers of the Small Business Commissioner to increase the pressure on firms who pay their invoices late. The problem of late payment is like a car driving with the handbrake on for the business world as it slows investment, increases costs and can on occasion bring down a supplier by destroying cash flow.
ICSM’s CEO Ian Carrotte welcomed the news with the caveat that some firms will always pay late even if they are threatened with higher costs. He felt that unless it became illegal to deliberately pay late then these measures do not go far enough and have an element of being ‘gesture politics.’
The Government announced: “Time to Pay Up: Government unveils toughest crackdown on late payments in over 25 years. Small businesses to be backed by new, stronger measures to tackle late payments.”
They make these points: “UK is backing small businesses with the toughest laws on late payments in the G7; Sweeping new powers for the Small Business Commissioner, including multi-million-pound fines to hold big businesses and persistent offenders to account; Measures will help tackle cost of living for entrepreneurs and SME owners by ensuring they are paid on time and prevent the abuse of retention payments in construction.”
In a press release the Small Business Commissioner Emma Jones CBE said that small businesses will be paid on time – as ‘we crack down on late payments, with the largest set of reforms in over a generation.’
She went on to say she would have 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.’
The Government said the measures will tackle a problem costing the UK economy £11 billion every year and ease the cost of living for entrepreneurs and SME owners who are often forced to wait months – or even years – to receive money they have already earned and having to chase endlessly to receive it. Some 38 businesses shut their doors every single day because they are not paid on time – the equivalent of 266 a week, and well over a thousand in any given month. Every small business owner, including tradespeople, freelancers, family firms and the self-employed, have to waste time and money chasing unpaid invoices when they could be growing their business. These measures, which will be the toughest in the G7, build upon and strengthen legislation on late payments, first laid out in the 1998 Late Payment of Commercial Debt Act, over 25 years ago. They go further than any previous government and will boost our economy and give small businesses better cashflow.
Emma Jones said: “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 8% above the Bank of England base rate. For example, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest (£10,000 plus £193.15 interest plus £100 compensation). We also propose 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.”
Ian Carrotte said: “We welcome the Government’s plans to increase the pressure on firms and organisations who pay their suppliers late with new powers for the Small Business Commissioner. But it is also about business culture where making late payment needs to be seen as unacceptable by all levels of businesses and organisations – and these changes will help to improve that culture only for some.
“The introduction of a 60-day cap on payment terms on all large firms when paying smaller suppliers, a new mandatory interest on late payments with a requirement for all commercial contracts to include statutory interest set at 8% about the BoE base rate is also to be welcomed. The financial penalties are an added incentive that may help to convince financial directors and business owners to pay on time.
“From a debt recovery perspective, the costs associated with chasing an unpaid invoice can be prohibitive so increasing the statutory interest rate that can be charged should make a difference in some cases.
“Although a good idea in principle there will continue to be many firms who see paying late as a means of gaining free credit from suppliers - and they won’t be swayed by the changes. And there is a problem for smaller suppliers to larger organisations who fear if they complain or even go public by naming and shaming, that they will lose that business.
“If truth be told these additions to the Government’s Small Business Plan will not make a huge difference to those who routinely pay late, and some may feel there is an element of gesture politics about them - but at least they are positive steps.”
For more on the Small Business Commissioner visit https://www.smallbusinesscommissioner.gov.uk/
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