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Getting paid on time: Can the Government help?

17 November 2020 Written by Stephen Cowan Category: Blog

It goes without saying that one of the greatest bugbears for businesses is getting paid on time. In the past, the Government has helped with legislation. Indeed, the Late Payment of Commercial Debts (Interest) Act 1998 has gone a long way in reducing the length of time in which commercial debt is paid. In the event of late payment, this legislation (along with subsequent EU Directives which have been enshrined into UK law by statutory instrument) allows businesses to claim interest, collection costs and compensation. So, why does the problem persist?

The issue is that many business do not want to use the legislation because there is a fear that if a supplier were to use it against its largest customers then they could lose their business. The scale of the problem is enormous. According to Government statistics, currently £23.4 billion worth of late invoices are owed to small firms across the UK.

What can be done about the 'fear factor'?

It will surprise nobody that this huge amount of late payment seriously impacts on an affected business’s cash flow, and quite possibly its survival. Following the launch of its consultation in October, the Government is investigating whether the powers of the Small Business Commissioner should be enhanced. Under consideration will be the power for late payers to be ordered to make payment to their suppliers, either by lump sum or via a payment plan, following a complaint having been upheld by the Commissioner once a complaint being made by the supplier. If the default persists, further penalties, including fines, could be imposed.

What about additional powers?

The Commissioner will also have the power to force companies to disclose information during the course of an investigation. This may well include details about how the company treats its other suppliers of goods and services and whether they are also being paid late.

In an exclusive interview which the Commissioner, Philip King, gave to Credit Management, he explained that the new measures should go a long way to improving the UK’s payment culture. He said the issue had been carefully reviewed over the last three years and conclusions reached, not least, following 2019’s Call for Evidence.

King mentioned that, following a separate consultation, beefing up the Prompt Payment Code was also being considered. The potential reforms include paying 95% of invoices to smaller businesses within 30 days; introducing additional mechanisms to ensure compliance with the Code; and permitting the Code’s administrators to approach signatories following a third party complaint, such as a trade body.

Conclusion

It is hoped that these additional powers will encourage late-paying businesses to pay their outstanding invoices timeously. The fear factor of a third party complaint could well be dispelled if the supplier is anonymised. However, UK-wide legislation will be needed to introduce these proposals. A change in attitude and culture will develop as soon as the parliamentary timetable permits and the law changed. So, it is really a case of watch this space.

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