New late payment law could see large businesses fined

08/10/2020

New plans currently being drawn up by the government could give the small business commissioner additional powers such as the ability to fine large companies.

The aim is to deter large businesses from taking months to pay smaller suppliers, a common occurrence that often leaves smaller businesses struggling to manage their cash flow. Research from the Federation of Small Businesses (FSB) shows that roughly 50,000 small companies close every year because of late payments.

Paul Scully, minister for small business, said that about £23.4bn was owed to small and medium-sized businesses last year in late payments, with research showing that there was a cost of £4.4bn a year just to collect money owed.

During the pandemic, this issue has reportedly become more prolific, particularly amongst larger businesses.

Ministers will have to consider whether the small business commissioner needs the power to order large businesses to make payments to suppliers or partners as a lump sum or payment plan, as well as whether they should be able to impose fines and court orders.

Ministers will also consult on whether they should give the commissioner further power to obtain information from companies during an investigation, and to launch an investigation into bad payment practices without having first received a complaint.

Although action has been taken to try and mitigate the impacts of late payments in the UK previously, there has been limited success, and many critics feel that more needs to be done to protect suppliers and small businesses.

Previously, business groups had raised concerns that the only powers the commissioner had were to highlight bad practices. In an attempt to make payment practices more transparent, the government made it mandatory for large businesses to publish their payment data twice a year, however this was also criticised, as it was pointed out that the raw format of the data makes it hard to use.

Mike Cherry, national chairman of the F SB, said: “We know that paying small businesses late is debilitating, and the practice has increased during Covid-19. It deprives small firms of cash flow, holds back growth, undermines productivity and forces many to take out external finance. In thousands of cases a year this causes the closure of small businesses.”

Have you been impacted by late payments? What measures would you like to see put in place to protect against this issue?