Around 50,000 small firms close each year due to late payments © Getty Images
Around 50,000 small firms close each year due to late payments © Getty Images

Firms face fines for late payments

Will Green is news editor of Supply Management
posted by Will Green
1 October 2020

Businesses that pay late could be fined under proposals unveiled by the UK government.

Under a review of the powers of the small business commissioner (SBC), it is proposed the SBC is given the power to impose sanctions including payment plans on late payers.

“These sanctions could include undertaking of binding payment plans and financial penalties where payment fails to take place,” said the Department for Business, Energy and Industrial Strategy (BEIS).

BEIS is also proposing the SBC is given powers to investigate suspected unfair payment practices at his or her own initiative or following a complaint, and to review the effect of legislation, policies and practices on small businesses, not limited to payment matters.

The SBC would also have the power to enforce non-compliance with requests for information, such as through court orders and financial penalties.

BEIS said currently £23.4bn worth of late invoices were owed to small firms across Britain.

Small business minister Paul Scully said: “Late payments are a terrible burden for small businesses, not only disrupting their cash flow but posing a threat to their survival in many cases.

“We are committed to tackling this problem, supporting small businesses at this critical time for the British economy by helping them to secure payment on time.”

The Federation of Small Businesses (FSB) said around 50,000 small companies close each year due to late payments.

Mike Cherry, national chairman of the FSB, said: “We know that paying small businesses late is debilitating, and the practice has increased during Covid-19. It deprives small firms of cash flow, holds back growth, undermines productivity and forces many to take out external finance. In thousands of cases a year this causes the closure of small businesses.”

Malcolm Harrison, group CEO, CIPS, said: “Everyone is feeling the pinch from the recent lockdown and its impact on business, so now more than ever we should be working with our suppliers to help maintain their liquidity and ensure good financial health throughout the supply chain. This is about improving the resilience of supply chains, which should now be top of everyone’s agenda. As corporates hold on to their cash flow while small businesses fail, punitive measures against serial late payers may be the only way now.”

He added: “The limited success of the Prompt Payment Code, to encourage fairer treatment of the SMEs who contribute billions to the UK economy each year, has left the door wide open for stronger measures. Whilst applauding the decision of the UK government to remove access to public sector contracts from serial late payers, it is not yet clear how effective this will be and such a measure would be difficult to implement more widely. Fines and greater scrutiny of those that sign up to the code, but whose actions do not follow suit, are steps which could drive more equitable business practices.”

BEIS said more than 2,500 businesses and public sector organisations had signed up to the Prompt Payment Code (PPC), launched in 2008 and under which signatories pledge to pay suppliers within 60 days. In 2018 a compliance regime was added to the PPC and to date 61 businesses have been named and suspended for failing to pay on time, of which 41 have been reinstated for demonstrating improvements.

A consultation on the changes runs until 24 December.

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