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Delinquent non-payers your time is coming

Updated: Apr 6, 2022


1. It’s a huge bore and distraction to chase for payment and we now have armies of people in credit control to do just this.

2. The Financial Times has reported that most Finance Directors regard delaying payment as part of their role and many commercial directors are encouraged to chisel away at payments due and get bonuses for doing so.

3. The Small Business Commissioner and Late Payment etc. Bill aims to address the problem of late payments experienced by small and medium-sized enterprises (“SMEs”). It seeks to introduce a framework to ensure that large businesses and public authorities pay their SME suppliers on time.

4. The Bill seeks to do this by strengthening the powers of the Small Business Commissioner (“SBC”) to enforce a new uniform statutory limit for payment of invoices. This is underpinned by financial penalties for persistent late payment or non-compliance by large businesses and public authorities.

5. The Bill further introduces a statutory time limit for resolving payment disputes and a duty on auditors to publish late payment data. Further, it requires the use of Project Bank Accounts for construction projects and prohibits specific predatory payment practices including “on boarding” charges, “pay-to-stay” charges and “prompt payment discounts”.

The current legal background

The current regulatory framework for ensuring prompt payment includes the following but is woefully inadequate and does little to overcome the attitude of finance directors whose DNA is to late pay wherever possible.

· The Late Payment of Commercial Debts (Interest) Act 1998 provides that businesses must pay invoices within 60 days unless otherwise agreed and provided such terms are not “grossly unfair”.

· Failure to pay debts as they fall due is an act of insolvency and can lead to a winding up petition pursuant to s.123 of the Insolvency Act 1986.

· Public bodies must pay undisputed invoices within 30 days as provided in the Public Contracts Regulations 2015.

· Businesses can claim statutory interest for late payment through the Late Payment of Commercial (Debts) Act 1998. The Act was incrementally strengthened in 2002 enabling business to claim compensation (£40-100 per invoice) and again in 2013 allowing businesses to claim ‘reasonable costs’ of recovery.

· Large businesses are required to report on payment performance and practices but there are no powers for monitoring the accuracy of data submitted and no consequences for non-compliance.

· The Prompt Payment Code is a voluntary code established in 2008 with over 2,000 signatories. Signatories agree to pay 95% of all supplier invoices within 60 days.

· The UK’s first Small Business Commissioner. Paul Uppal was appointed in October 2017 through the Enterprise Act 2016 to “empower small businesses to resolve payment disputes with larger businesses and avoid future issues by encouraging a culture change in payment practises and how businesses deal with each other.”

· In June 2019 the Government responded to its consultation and called for evidence “Creating a responsible payment culture: a call for evidence on tackling late payment,” proposing to strengthen the powers of the Small Business Commissioner however no progress has been made.

What the new bill is proposing

Small Business Commissioner and Late Payment etc. Bill 2019-2020 received its first reading in the House of Lords on 21st January. It is designed to further address the problem of late payments experienced by small and medium sized enterprises.

Summary of proposed changes

Here is a summary of the Bill’s key clauses:

(1) 30 day statutory limit for payment of invoices

(2) 30 day statutory dispute resolution period

(3) Automatic payment of interest and compensation

(4) Extending the remit of the Small Business Commissioner to include public contracting authorities and construction businesses

(5) Financial penalties for persistent late payment with a maximum financial penalty for larger businesses at £10,000.000 or 4% of annual worldwide turnover and the maximum penalty for public contracting authorities is £1,000,000.00.

(6) Publication of payment performance by the Small Business Commissioner

(7) Banning unfair payment practises which negatively impact SMEs namely: (a) “Prompt payment discounts” where purchasers demand discounts for early payment invoices (b) “Pay-to- stay” practises whereby purchasers impose charges on suppliers to maintain their supplier status (c) Contractual clauses that preclude suppliers from ceasing work or placing works on hold.

(8) Imposing duties on Auditors to report payment performance and to make auditors liable for any misreporting or non-compliance with the duty to report to their clients.

(9) Publication of payment performance by public contracting authorities

(10) Requiring public contracting authorities to establish Project Bank Accounts (“PBAs”) where they are involved in construction operations in excess of £500.000. PBAs would ensure that all monies would be held in a separate account so that all contractors in the supply chain have their payments protected in the event of an Insolvency.

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1 Comment

Apr 05, 2021

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