The Department for Business, Innovation and Skills (BIS) has launched a consultation aimed at tackling ‘grossly unfair’ contracts and late payments.
The government wants to provide business representative bodies with wider powers to challenge contractual terms and practices.
According to the department, small and medium businesses are owed a total of £39.4 billion, and small businesses are waiting for an average of £38,200 in overdue payments.
“This has a damaging knock-on effect on small businesses’ ability to manage their finances and plan for growth. In addition, late payment by one company pushes the problem down the supply chain, potentially affecting many more firms,” the consultation document says.
The consultation examines how to transpose the EU Late Payment Directive, which was recast in 2011 to allow representative bodies to challenge all contractual terms or practices with regards to late payment considered “grossly unfair”.
It will look at who might be covered by a representative claim - individual businesses, or groups of businesses, which organisations can bring a claim, options for dispute resolution, and the resources available to bring a case.
The consultation will also look at whether to further refine the definition of “grossly unfair” payment practices and whether this could include when there is a disparity of bargaining power between the parties involved.
Business secretary Vince Cable said: "Large companies using their economic might to impose unreasonable terms on their suppliers causes real problems for small businesses. It is a significant issue and there is agreement that we need to keep the pressure up to bring about real change. This is about making the UK a fairer and more trusted place to do business."
At the same time, the Federation of Small Businesses has called for an independent inquiry into what it describes as a "poor payment culture" in the UK.
“The time has come to address this issue once and for all," said FSB national chairman John Allan. "The abuse of small firms in their dealings with bigger businesses can’t continue. We have seen the UK’s payment culture significantly deteriorate in the past five years. The gradual creep of payment terms from 30 days to well over 100 days in some cases, coupled with debilitating contract terms, can have a disastrous effect on a small firm’s ability to operate. For payment culture to improve, we need fresh thinking and bold steps to be taken."
The BIS consultation runs until 9 March.
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