Loophole in late payment law renders it ‘not fit for purpose’

A loophole that enables large companies to avoid revealing how long it takes them to pay their suppliers has made the law not fit for purpose, according to the employers’ group, the Forum of Private Business (FPB).

Large companies have a duty to report how long it takes to pay their suppliers at least twice a year.

Late payments can put a huge burden on suppliers and many SMEs run the risk of going out of business.

The law lists three criteria that define a large company in relation to late payments; a £36m turnover, £18m total balance sheet or employing 250 or more staff.

A firm that meets two of the three criteria is considered a large company.

However, the law doesn’t require all subsidiaries of a firm to publish payment reports, even if they are part of a larger company.

It means that large firms can use their various subsidiaries to make purchases and therefore avoid the obligation of publishing payment reports.

Rachel Reeves, chairwoman of the Commons business committee, said: “If large companies can exploit loopholes to dodge reporting requirements, it undermines efforts to tackle late payments and protect small businesses.”

Ian Cass, managing director of the FPB said: “The loophole makes a mockery of the legislation. A large organisation with lots of subsidiaries can just bypass the whole process, which is a joke. It seems to be another example of poorly written legislation . . . that is not fit for purpose.”

Please contact Neil O’Callaghan if you would like advice about credit control and ensuring prompt payment of invoices.