CIPS group CEO Malcolm Harrison says poor payment practices are ingrained in many firms
CIPS group CEO Malcolm Harrison says poor payment practices are ingrained in many firms

Firms face fines for late payment

Will Green is news editor of Supply Management
20 June 2019

Large businesses could be fined for late payment under a raft of measures outlined by the UK government – but CIPS says more change is needed.

Small business minister Kelly Tolhurst said powers could be handed to the small business commissioner to compel the disclosure of payment terms and practices and impose financial penalties and binding payment plans on large firms found to have unfair practices.

Responsibility for the Prompt Payment Code – a voluntary scheme signed by more than 2,000 firms – will also move to the small business commissioner.

Following up on the chancellor’s Spring Statement, where he announced firms would be required to report on payment practices, the Department for Business, Energy and Industrial Strategy said it would prefer to implement this through guidance to company audit committees but it would consider legislation “if necessary”.

Tolhurst said the amount owed in late payments had halved over the past five years.

“Small businesses are the backbone of our economy and through our modern Industrial Strategy we want to ensure the UK is the best place to start and grow a business. These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly – ending the unacceptable culture of late payment.”

Malcolm Harrison, group CEO, CIPS, welcomed the announcement but said late payment was “ingrained in the culture of many businesses” and “more change is necessary”.

“The current practice of self-regulation of payment terms has failed to make any significant impact,” he said.

“The practice of enforcing long payment terms onto smaller suppliers is too often seen as a legitimate business strategy, creating inefficiencies and strain on the vast majority of small businesses right across this country.

“While these new government measures may help to ensure that contract terms are met, it is important we do not stop there and continue to drive down lengthy payment terms in supplier contracts to ensure SMEs are able to manage their cash flows, to grow their businesses and remain productive. More change is necessary.”

He added: “It is essential that these new measures are not launched and then ignored but are rigorously enforced, with consequences, to help create a responsible payment culture that will benefit all companies and support a healthy economy.”

The proposals, which the government will consult on, also include a new fund of up to £1m to encourage businesses to use technology to simplify invoicing, payment and credit management, and a “tough new approach” to firms which do not comply with the Payment Practices Reporting Duty, an existing requirement on large firms to report to a national database twice a year.

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