Late payment crisis costs Britain 38 businesses every day

              

 

Small businesses across the UK are still being forced to wait months for money they have already earned, with late payments contributing to an estimated 38 business failures every day. Now a new Commercial Payments Bill making its way through Parliament aims to tackle the problem by capping payment terms, banning controversial construction retentions and giving the Small Business Commissioner new powers to investigate and fine persistent offenders. But many business owners fear that allowing firms to wait up to 60 days could still leave smaller suppliers struggling to survive.

The scourge of late payments

Many attempts have been made, over many decades, to resolve the issue of small suppliers of services and goods having to wait to be paid. Thousands have gone bust while they waited.

Over that time invoices, or other requests to pay, haven’t been fulfilled by the due date and called late payments. Alternatively, customers have inserted long payment terms into the contracts, leaving suppliers feeling they have no choice but to accept for fear of losing the work. These have also been called late payments.

Either way small businesses have been left struggling to manage their cashflow because someone else is sitting on their hard-earned cash and using them as a bank.

The Impact

Poor payment practices have been strangling cashflow to the point where 38 businesses a day go bust, costing the economy £11billion a year.

This needs to stop. All previous attempts have failed to shift the dial.

To that end a new Bill is creeping through the parliamentary process. Yesterday afternoon, 9^th June, saw the second reading of the Commercial Payments Bill (aka the Late Payments Bill and the Small Business Protections (Late Payments) Bill).

A ‘second reading’ would suggest the members of the House of Lords ‘read’ the bill during the session, but they come along, having read it already, been briefed, and picked out the parts they want to ask the relevant Minister questions on. Yesterday’s speaker had done their homework. It was an interesting debate.

The main changes

The main emphasis of the Bill is to apply a 60 day maximum payment period in commercial contracts (not public sector contracts which have their own legislation and have to pay in 30 days or less) between big business customers and their small suppliers with ‘limited exemptions’; to make sure disputes about invoices are raised early and resolved quickly; to ban retentions in construction contracts; and to increase the powers of the Small Business Commissioner so that the team in that office can investigate and even issue fines to large businesses that are persistent late payers.

There seems to be universal support for greater powers for the Office of the Small Business Commissioner but many questions about the funding of the office and where the resources to deliver increased powers and workload would come from.

There also seems to be support for a maximum payment period but speakers did question whether 60 days is too long for small businesses to wait. 45 days was suggested by a couple of Lords and some who had personal experience felt 30 days or less would be more appropriate, as small business need their money much more quickly, having already done the work and paid for labour and materials. There seemed a real understanding of the issues and the pain overdue payments and long payment terms cause.

Retentions in Construction

There was a lot of support for the ban on retentions in construction contracts. Small businesses in construction often go bust without ever having been paid the retention money despite there being no flaws in the work they’ve delivered. Others never get the money because the firm holding the retention money goes bust before paying up, as was the case with Carillion in 2018. Some queried whether firms would look for a way around a ban, whether retentions would spring up under another name when they were still really ‘retentions’, and some asked what other insurance a company would have against poor work delivered if the ban goes ahead.

We need Clarity

Lord Mendelsohn asked what the definition of ‘payment’ would be. A valid question. If the paying firm counts payment as having been made when it’s approved or added to the next payment run, that’s very different from the payee having the money cleared in their account. Small payees count a payment as having been made on the day the money is available to them to use to pay their own bills and suppliers. There could be days or even weeks between those two approaches.

Similarly, we need clarity on the issue of ‘when the clock starts’ ticking down to the date at which payment is made. Do you count the max number of days from the date the request for payment is received into your business (as the current guidance says)? Or do you count from the date, as many firms do, that the request is approved, or that the accounts payable department receives the paperwork? Again, there could be a huge discrepancy between those dates. We can’t have a meaningful maximum payment period, or measure results, unless we’re all counting the same thing.

Definitions and Exemptions

There were other questions around definitions of business sizes, details of exemptions and the powers of the Secretary of State to come up with new ones. All agreed that the devil will be in the detail.

60 days is still too long

The biggest issue still is that small businesses need to be paid as quickly as possible. Having a maximum payment term in a contract doesn’t stop good payers paying quicker. Good payers may still pay in 7 days, 15 days, 30, 45, but they may look at the prevailing economic environment and at political and geopolitical uncertainty and decide to sit on their cash for the maximum allowable 60 days. They may even raise disputes at the last minute and add the validation period of 30 days allowable in the Bill onto 60 to make 90. They may be guilty of paying late on top of the 60 days in the contract. If all or any of that happens small suppliers could be worse off than before and that must not be allowed to happen. Several speakers did ask what could be done to stop good payers taking longer to pay.

A long way to go

The debates and discussions are ongoing. There are various stages to go through in the Lords and the Commons before this new Bill becomes an Act, gets Royal Assent and becomes law. That time has to be used to make sure there aren’t loopholes, workarounds and concessions that make a bad situation worse. Whichever amendments are put forward have to improve the Bill. Whatever the final legislation looks like there must be proper enforcement behind it. Who heeds rules that aren’t enforced, or powers to fine that are never followed up because there’s no resource behind the powers? This legislation needs to count for the small businesses that are crucial to the economy and for the UK Economy and communities that depend on them.

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