Retailers have welcomed new measures to clampdown on late payments and protect small suppliers being held to ransom by larger clients.
The measures, which the Department of Business & Trade has hailed as the “toughest crackdown” on late payments for a quarter of a century were first revealed under Labour’s small business plan, launched in August last year. Having wrapped up a consultation with businesses, ministers will now seek to bring them into legislation.
Proposals include a new 60-day cap on payments deadlines for any large company paying a smaller supplier. Any company that misses the payment deadline will also now be fined through the introduction of a new mandatory interest for each day it is over the deadline.
Commercial contracts will be required to include a statutory interest rate set at 8% above the Bank of England base rate.
Proposals will also see the Small Business Commissioner given sweeping new powers to investigate poor payment practices, rule on payment disputes and issue fines, worth potentially tens of millions for repeat offenders.
Boards of persistent late payers will be required to publish explanations as to why their payment practices are so poor.
The BRC, which represents major retailers and supermarkets in the UK, welcomed the proposals.
“Retailers have built strong, trusted relationships with their suppliers and have worked hard to create payment terms and processes that benefit all parties,” said Graham Wynn, assistant director of consumer, competition and regulatory affairs.
“While the government is taking strong action, it is nevertheless clear the government has listened to businesses, and we welcome the proposals on prompt payments which allow contracts between large retailers and large suppliers to be exempted from the 60 days requirement while continuing to provide small suppliers with advantageous terms.”
Wynn called for the measures to go further, so that they were more flexible and better reflected the nature of global supply chain pressures.
“Systems that would allow the payments clock to start ticking at agreed points when goods are being imported will help smooth payment operations for all parties,” he said.
Read more: Why time’s up for late payers as struggling SMEs get support
The proposals, which were drawn up in conjunction with the Federation of Small Businesses aim to ease the strain on SMEs, freelancers and entrepreneurs amid the wider cost of living crisis.
Chasing late payments cost the UK economy on average £11bn a year. On average, 38 small businesses shut their doors each day because they are not paid on time.
“Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable,” said business secretary Peter Kyle.
“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day-to-day lives much easier.”
FSB policy chair Tina McKenzie urged the government to bring the proposals into law as soon as possible.
“The new laws will finally bring a stop to big businesses using their small suppliers as sources of free credit,” she said.
“For the first time, audit committees and boards will question and challenge poor payment performance, publish it in annual reports for all to see, and put it right. Paying in 60 days is not prompt – but strengthening that as the absolute maximum cap after years of dithering is a good step towards encouraging payments in 30 days across all supply chains. Improving the Small Business Commissioner’s powers will also help, mandating CEOs of Britain’s poor payers to take the phone call.
“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day-to-day lives much easier.”
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