Culture of Late Payment Practices

The culture of late payment, particularly in the construction industry, has long been identified as a major problem to SMEs. This issue was highlighted last year when there was a consultation into late payment practices by the Department for Business, Energy & Industrial Strategy (BEIS) after pressure from the Federation of Small Businesses (FSB) among others. The key proposals from that consultation have now been published and state:

• Company boards will be held accountable for supply chain payment practices for first time
• New powers for Small Business Commissioner, an office set up by government in 2017, to tackle late payments, including fines and binding payment plans
• A new fund to encourage businesses to use technology to simplify invoicing, payment and credit management.

What this means is that company boards will now be held accountable for the payment practices to smaller businesses within their companies in order to drive an increase in transparency and accountability on late payments. These new measures will also mean that audit committees will have to report payment practices in their annual company reports.

There will be a government consultation on strengthening the powers given to the Small Business Commissioner to hold firms to account should larger companies fail to make their payments on time. What these powers would be is not certain, but they could include enforcing binding payment plans or imposing financial penalties on businesses found to have unfair payment practices. The Small Business Commissioner will also now have responsibility for the Prompt Payment Code, the industry’s voluntary code of practice and the new legislation will mean that large companies who fail to comply with the payment practices reporting duty will now leave themselves open to prosecution.

The Minister for Small Business, Kelly Tolhurst said, “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.” The chairman of the FSB, Mike Cherry, also welcomed the news, “Small businesses will be delighted with today’s announcement. FSB has worked very hard with government to create a whole-board approach to late payment within the UK’s large companies and empower Audit Committees to look after the supply chain. Together with measures to strengthen the Small Business Commissioner’s powers and reform the Prompt Payment Code, the measures today could finally see an end to poor payment practice. Changing our business culture will boost the small business community, productivity and growth.”

However, there were some rather more mixed reactions from the business sector. The National Federation of Builders (NFB) stated that the proposals were welcome but questioned whether they would actually do anything to improve the situation of construction companies on the ground. Richard Beresford, chief executive for the NFB said, “Despite changes to the Prompt Payment Code, 50,000 businesses fail every year because of late payment. Even the department for business admitted that payment times are getting longer. How many more businesses have to go under before we make late payment a thing of the past?” Nick Sangwin, national chair of the NFB, also expressed his frustration saying, “Today’s announcement does not help small construction businesses who are about to go under because they are owed money. Nothing has changed for SMEs.”

The Federation of Master Builders (FMB) also voiced their concerns, that while the proposals were broadly welcome, they simply don’t far enough. While acceptance of the serious imbalance of power between the smaller and large companies has been acknowledged, the FMB would like to see more being done to change the culture of late payments, meaning that it would no longer be standard practice. Brian Berry, chief executive of the FMB said, “Fundamentally, to rebalance market power for small to medium-sized companies (SMEs), the public sector should lead by example by breaking up contracts into smaller ‘lots’ and desist from the wholesale ‘bundling’ of contracts. This will help SMEs to act as the principle contractor. By introducing more competition into public sector procurement in this way, payment terms will improve as the balance of power is restored.”

The Small Business Commissioner, Paul Uppal, spoke about he was struck by the levels of trepidation that smaller businesses feel around raising the topic of late payment with their large suppliers. He went on to say that he welcomed, “…any additional provisions which will strengthen the influence my office has in tackling poor payment practice and levelling the existing playing field.”

50,000 businesses failing a year due to late payments is a stark statistic. If you caught in a late payment cycle and are unsure what you can do, give us a call, we can help. At Daniels Silverman we regularly partner with SMEs to provide white label credit control services to our clients. This means the time, energy and stress that you are currently spending on trying to ensure that you get paid on time is removed from your business. We understand the need to protect your client relationships and put this, and your reputation, at the heart of all we do. We like to put our clients in control and so we don’t charge commission on the invoice amounts, we charge a flat fee depending on the number of invoices to be collected, with payment going directly into your account, you always know exactly where your business is up to. Want to find out more about how we can help support your business?  One of our friendly team will be able to chat via the website, or you can give us a ring on 0800 953 3631 we’d be happy to hear from you.

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