A major government crackdown on Britain’s late payment culture could end in a “car crash” unless the new rules are carefully drafted and, more importantly, enforced, the former small business commissioner has warned. His evidence: thousands of firms have already broken the payment rules we have, and not a single one has been prosecuted.
Philip King, who was the commissioner for small businesses during the epidemic, said that previous efforts to fix the problem fell short because no one enforced it. “Unless we enforce these things, are we going forward?” he said.
His warning comes as the government’s overhaul of commercial payments rules, billed as the biggest shake-up in more than 25 years, reaches the House of Lords on Tuesday.
For small business owners, the package promises long overdue relief. Large companies will have to pay small suppliers within 60 days, interest will automatically appear on overdue invoices, so-called retentions will be prohibited from construction, and the small business commissioner will gain powers from companies that fine suppliers unfairly.
King, a veteran campaigner on the issue and former chief executive of the Chartered Institute of Credit Management, welcomed the changes. But he warned: “The issue will be how the laws are written, if they are written well they have good chances of success, if they are written badly then there is a car accident.”
“The second issue is interpretation. Going to 60 days is good, but what if companies that currently have 30-day payment terms go to 60?
“There are all kinds of risks, they have to be done carefully. And enforcement is very important. If there is a clear set of rules and an element of accountability to it, I think that would move things forward.”
His skepticism is well founded. Large businesses in the UK still have a legal duty to report their payment methods every six months, and failure to do so is a criminal offence. Yet only about half of the companies that should be filing reports do so, thousands are breaking the law regularly, and no enforcement action has ever been taken.
The economic implications of SMEs are huge. The government says slow and late payments cost the economy £11 billion a year and “stifle growth, cost jobs, and force many good businesses to close”.
There is another gap that should give owner-managers pause. The new rules target the payment practices of large businesses, however a large part of the problem lies within the small firms themselves. “Most late payments are a small company in a small company, however any business with less than 250 employees, which is the majority of UK companies, is not caught by it. It is not universal and there is a risk in that,” King said.
Peers will now try to strengthen the bill. Lord Leigh of Hurley and Lord Sharpe of Epsom should propose amendments that include additional resources for the commissioner’s office, which can mediate in payment disputes, as well as measures to stop large companies from delaying payments in ESG categories and banning cryptocurrency payments as a contract period.
Leigh, who is the founder of Cavendish Corporate Finance, said he would also support a “cold shoulder” provision where the worst offenders would be avoided by the government, including public contracts.
A spokesperson for the Department of Business and Trade said: “Too many large companies were simply not paying on time.
