Government unveils toughest crackdown on late payments in over 25 years
Small businesses will be paid on time – that’s the clear message from the government as it cracks down on late payments, with the largest set of reforms in over a generation.
ACCA has welcomed the changes to the UK’s late payment regime. The proposals – set out this week by the Minister for Small Business and Economic Transformation – promise the most dramatic change to the UK’s payment culture in a generation. When implemented they could help transform the cashflow of the small business sector.
The Small Business Commissioner will be given sweeping 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 measures will tackle a problem costing the UK economy £11bn 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.
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).
The proposals also include a ban on withholding retention payments under the terms of construction contracts, with a consultation on its implementation. This will prevent small firms losing retentions to insolvency or non-payment.
