Late Payments Targeted With New Legislation

NEW LEGISLATION TO TACKLE late payments to small businesses “once and for all” is set to be introduced to Parliament by a Labour Lord today.

A Private Members Bill is being introduced to the House of Lords by Lord Mendelsohn today, which aims to combat the problem and give more power to the Small Business Commissioner.

Lord Mendelsohn said, “Late payment is crippling small businesses while the UK economy is crying out for investment. By failing to tackle late payment we are starving our small businesses of the capacity to act.

“The recent huge escalation in outstanding payments shows that decades of promoting ‘culture change’ has only made things worse.

“This Bill will tackle the issue once and for all with a package of measures that is operable, impactful and measurable”.

Huge problem

The problem has grown significantly in recent years, with a survey by Pay.UK, which runs Bacs payment systems, suggested late payment almost doubled between 2018 and 2019. The survey also found that over half of small businesses are paid late.

About 50,000 businesses fail every year due to late payment, according to the Federation of Small Businesses, and a survey by SEC Group revealed that 90% of construction business owners reported mental health issues, from stress to suicidal feelings, due to payment abuse.

Professor Rudi Klein, CEO of the SEC Group, the umbrella body representing the largest sector in UK construction, said, “I wish to place on record my thanks to Lord Mendelsohn and also the thanks of SMEs in the UK’s construction industry which have had to bear the impact of payment abuse and losses from major insolvencies in the industry.”

New powers

The Bill’s measures include:

  • A 30-day limit on all payments, matching the requirement on public bodies.
  • Powers for the Small Business Commissioner to impose large fines on the worst offenders.
  • Making payment of statutory interest and compensation automatic, removing the need for suppliers to claim it from their customers, which rarely happens in practice.
  • Expanding the remit of the Small Business Commissioner to include the construction sector and public bodies, where some of the worst payment practices exist.
  • Banning the most unfair payment practices such as charging fees to join supplier lists, prompt payment discounts or clauses than prevent work from stopping due to non-payment.
  • Mandating the use of Project Bank Accounts for large public construction projects.

Phil Hall, Head of Public Affairs & Public Policy at the Association of Accounting Technicians, said, “AAT has long campaigned for meaningful action to end the scourge of late payment.

“Despite lots of noise from Government there has been nothing but more bureaucracy, tinkering and an emphasis on voluntary measures.

“There is no reason why any business should be paying its suppliers in more than 30 days and the Small Business Commissioner must have powers to impose fines on persistent late payers.

“As a result, AAT very much welcomes the measures being proposed by Lord Mendelsohn and hopes other politicians, from all parties, back this important Private Members Bill.”

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