SMEs to get more protection against late payment by large firms

The government is introducing a series of new measures to deal with the growing problem of late payment of invoices.

It could lead to trade bodies being given the power to take legal action against large firms that impose unfair terms on smaller businesses. Large supermarkets may also face fines for breaching regulations. The proposals have been drawn up following close consultation with the Federation of Small Businesses.

The measures include:

• consulting on ways to tackle poor payment practices, such as by giving representative bodies greater powers to challenge grossly unfair payment terms and practices
• leading by example on public sector procurement
• new laws to increase transparency on the payment practices of large and listed companies and help change corporate payment culture
• toughening up the Prompt Payment Code
• giving the Groceries Code Adjudicator the power to fine supermarkets for breaching the Groceries Supply Code of Practice.

It’s hoped that the measures will give small businesses the confidence to speak out when larger customers try to resort to unfair practices.

Business Secretary Vince Cable said: “Large companies using their economic might to impose unreasonable terms on their suppliers causes real problems for small businesses. It is a significant issue and there is agreement that we need to keep the pressure up to bring about real change.”

Business Minister Matthew Hancock said: “Small businesses are the economic backbone of the UK, but some large companies are squeezing the life out of them by imposing unreasonable payment terms. This behaviour must stop, once and for all.

“Greater transparency is key and we are setting an example in government, by committing to paying 80% of our invoices within 5 days, with a maximum of 30-day terms on all public sector contracts.”

The government is now conducting a public consultation on the proposal to give representative bodies the powers to challenge grossly unfair terms and practices in relation to late payment. It’s seeking views on:

• who might be covered by a representative claim (individual businesses or groups of businesses)
• which organisations can bring a claim
• options for dispute resolution
• the resources available to bring a case
• whether to further refine the definition of ‘grossly unfair’ payment practices.

The consultation runs until 9 March. We shall keep clients informed of developments.

Please contact Thomas Nolan if you would like help with credit control and debt collection.