The UK government has published its response to a consultation on creating a responsible payment culture: a call for evidence on tackling late payment.

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, wrote the government.

Measures will also force Audit Committees to report payment practices in company annual reports.

The government said it would consult on strengthening the powers of the Small Business Commissioner Paul Uppal to hold to account the minority of larger businesses who 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.

This will put tools to tackle late payment under one organisation, ensuring the Commissioner has the powers to affect culture change in unfair payment practices.

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Other proposals include:

  • A tough new approach to large companies which do not comply with the Payment Practices Reporting Duty – an existing mandatory requirement on large businesses to report payment practice to a national database twice a year. The legislation allows for the prosecution of those which do not comply, and fines may be imposed. The government will consult on giving these powers to the Small Business Commissioner.
  • A Business Basics Fund competition of up to £1m in funding to encourage businesses to use technology to simplify invoicing, payment and credit management to ensure they work as effectively as possible.

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.

“This ambitious package of measures will level the playing field for the UK’s 5.7m small businesses, delivering on the modern Industrial Strategy’s ambition to make Britain the best place to start and grow a business. Ending the culture of late payments will pave the way to boost SME productivity, remove barriers to growth and improve cash flow.”

The Small Business Commissioner’s Office was set up by government in 2017 to tackle the issue of late payments. It has already recovered over £3.8m and more powers will enable it to tackle this unacceptable culture and do more to champion businesses across the UK.

Last year, the government said it would tackle late payments following the Carillion scandal that saw some SMEs offered 120-day terms on payments as part of their contract.

In response to the findings, the government promised action.

Reaction from lessors

Carl D’Ammassa, group managing director, business finance at Aldermore Bank said: “We welcome the government’s response to the late payments call for evidence as a significant step forward. The introduction of financial penalties, binding payment plans, and holding company boards accountable for supply chain payment practices for the first time; are some of the robust measures which Aldermore has long called for.

“New funding to encourage businesses to use technology to simplify invoicing, payment and credit management is also welcomed and can’t come soon enough. Our own Future Attitudes research, found that 25% of SMEs said late payments have almost pushed them to the wall. In addition, 23% of SMEs said that they had missed out on an opportunity because they were not paid on time, equating to an average late payment of £65,000.

“Today’s announcement will give hope to millions of SMEs. However, pressure needs to continue to be exerted and these measures need to be enforced, to ensure the issue of late payments is stamped out.”

Andy Dodd, managing director of Hitachi Capital Invoice Finance, said: “We welcome the Government’s intentions to give greater support to SMEs in tackling the scourge of late payments.

“The imbalance of power between clients and suppliers is a key underlying cause for long and unfair payment terms, and we would be supportive of greater powers for the Small Business Commissioner to enforce best practice and take action against business that does not meet their supplier obligations.

“As one of the UK’s biggest business finance providers, we understand first-hand the impact that late payment can have on a business. Many SMEs struggle to maintain liquidity and this remains an underlying threat to their survival, which is why invoice finance can be a crucial tool to ensure business success or, in some cases, simply survival.

“The government’s decision to remove the barriers to SMEs in using invoice finance will provide an added level of flexibility and certainty over cash flow, which is vital to UK businesses. We’d challenge the government to go further and look at how large corporates are using their position to reduce payment, not just delay, which we believe is a growing issue that needs addressing.”

Peter Kubik, Partner at UHY Hacker Young, agreed that larger corporates were still given a long leash, regarding how long ‘unfair’ terms related to, and said: “At present, there is no hard and fast definition of what ‘unfair’ payment terms are so a lot of businesses at the top of the supply chain could operate with 90-day terms. This can be tough on SMEs who have tighter margins.

“If these proposals go as far as explicitly defining how many days is too long to pay suppliers and what constitutes unfair or even grossly-unfair payment practices, then this will push real change.”