Late payments remain a major challenge for UK businesses, costing the economy an estimated £11 billion every year. Following consultation between July and October last year, the government has now published its response, outlining a range of proposed measures aimed at improving payment practices.
So, what’s being proposed, and how might it affect you?
In summary, the proposed changes signal a shift towards stricter enforcement of payment practices and greater protection for suppliers. Businesses may face:
- Increased scrutiny of companies making late payments
- Greater penalties associated with late payments
- Tighter timelines imposed for the completion of payment
The government has stated that it intends to legislate as soon as Parliamentary time allows.
Until then, it’s worth reviewing your current payment practices and protections. Our accompanying blog outlines three practical steps you can take now to help reduce late payments. And, if you’d like tailored advice or support, please do get in touch we’d be happy to help.
Strengthening Oversight
One of the most significant proposals is the expansion of the Small Business Commissioner’s (SBC’s) powers. The SBC will be able to investigate businesses suspected of poor payment practices or inaccurate reporting, resolve disputes without court action and impose fines on those failing the comply with the late payment legislation. This includes substantial fines for large companies.
Larger companies with poor payment records would be required to increase transparency at board level. Their boards or audit committees would need to publish a statement explaining why payment performance is poor and the steps being taken to improve it.
Payments and Disputes
In most cases, a maximum payment term of 60 days would apply, with only limited exceptions. Commercial contracts would also need to include a right to statutory interest, set at 8% above the Bank of England base rate. This would give suppliers clearer legal protection where payments are delayed.
A statutory deadline is being proposed for raising invoice disputes. If a dispute isn’t raised within the set timeframe, compensation would become payable. This is designed to reduce uncertainty and prevent invoices being delayed late in the payment process.
Sector-Specific Changes
For businesses in the construction sector, a significant change is proposed. The government intends to ban the practice of deducting and withholding retention payments under construction contracts—a move that could have a major impact on cash flow for contractors and subcontractors.
Your questions answered
Will payment terms be capped?
In most cases, yes. A 60-day maximum is proposed, subject to limited exceptions. Subject to further discussions, this payment term could be reduced further to 45 days.
Will late payers face penalties?
Yes. The Small Business Commissioner may be given powers to fine businesses that persistently pay late.
What support is being introduced for small businesses?
The proposed changes aim to strengthen protections for smaller businesses by improving enforcement of payment rules and enabling faster dispute resolution. Expanded powers for the Small Business Commissioner could make it easier to challenge late payment without needing to pursue costly legal action.
