THE UK Government has unveiled what it says is the ‘largest set of reforms in over a generation’ as it looks to ensure small businesses are paid on time.
The Small Business Commissioner will be given 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 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.
The government will also propose to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms losing retentions to insolvency or non-payment.
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, the UK Government said.
Business secretary Peter Kyle said, “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable. We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”
After working closely with the Federation of Small Businesses (FSB), boards or audit committees of persistently late-paying large companies will be required to publish explanations for poor payment performance and the actions they are taking to address it.
FSB policy chair Tina McKenzie added, “Late payments are a blight on our economy, so FSB is pleased to have worked in partnership with the government to deliver the toughest legislation in the G7. The new laws will finally bring a stop to big businesses using their small suppliers as sources of free credit.”
NFRC (National Federation of Roofing Contractors) welcomed the announcement, saying it will help address the ‘cash flow crisis’ that has long impacted NFRC members and other specialist contractors across the construction industry.
NFRC Group CEO James Talman said, “This outcome is one our industry has been campaigning for years to achieve. For too long, specialist contractors have been forced to operate under a system that allowed larger firms to withhold their money, delay payment, and use their cash as free working capital. Today, the government has shown that it has listened, and we could not be more pleased.”
