Do the UK Government’s new Late Payment Proposals go far enough? (Spoiler alert – No) - Douglas Chapman

Late payments which can be catastrophic for small businesses in terms of cash flow, debt and even bankruptcy

Late payments are a huge issue for business

​The UK Government has already published highlights from its review which is due out in full later this autumn. This follows the announcement last Christmas on its consultation with relevant stakeholders to scrutinise existing practices and measures in combatting late payments which can be catastrophic for small businesses in terms of cash flow, debt and even bankruptcy. Attempts in recent years to improve the situation have included the introduction of the Prompt Payment Code and the appointment of Liz Barclay as Small Business Commissioner to hold non-compliant businesses to account.

However, numerous studies have shown that late payments have been on the increase during and post the pandemic. It’s certainly been a torrid time for businesses as they’ve also wrestled for survival against the-post Brexit “drag”, to quote Peter Foster in the FT, the terrible war in Ukraine, the crippling energy and cost-of-living crisis as well as rampant inflation. Given this backdrop, it seems imperative to support the few businesses that are left standing as well as encourage new ones to set up. Ensuring companies pay their bills on time should be a straightforward part of this, especially when the Federation of Small Businesses estimate that around 50,000 business closures could be avoided per year if invoices were paid on time.

According to data recently gathered by the Chartered Institute of Procurement and Supply, some larger companies have been ignoring existing ‘duty to report’ regulations. This chimes with research by the Federation of Small Businesses, which found that 52 per cent of small businesses experienced late payment in 2022, 25 per cent experienced increased late payment and 37 per cent had to apply for credit to manage their cashflow. Their research showed that one in seven larger companies are ignoring the rules, taking advantage of smaller companies who may not feel confident to stipulate payment terms when securing and negotiating their contract. For many this can mean waiting 60, 90 or even an astonishing 120 days to be paid.

The UK Government says it is aiming to tackle these issues head-on, highlighting some new proposals to be featured in the full review which include broadening the powers of the Small Business Commissioner through legislation (something the FSB have been calling for), providing more advice for small businesses in terms of negotiating better payment terms for themselves and using digital procedures to improve processes, as well as legislating on extending payment performance reporting obligations. But will these new “tougher” measures (to quote the Department for Business and Trade) be enough? You’ll not be surprised to read that I am far from convinced with the scope of the highlights of the review. The term ‘wishy washy’ springs to mind given the hurdles small businesses face to get paid on time.

The Government is keen to encourage a more ethical payment culture to foster compliance and grow awareness of payment terms. This may seem a noble way to do it, but let’s face it, good intentions may well fly out the window when times are hard, while human nature being what it is, others may take liberties with an already imperfect system.

And the research backs up that experience on the ground – more “symbolic of a culture of disregard” according to Terry Corby, CEO of campaign group Good Business Pays than the kind of personal responsibility culture the Government intends.

Earlier this year, the FSB released a new report entitled ‘Time is Money: The Case for Late Payment Reform’ to highlight the true extent of the damage caused by poor payment practices and the insufficient measures in place to hold big business to account. Their recommendations include giving audit committees of large firms oversight of payment practices and reporting on progress in their annual report, imposing 30-day payment terms, and publicly committing to limit the maximum payment terms to small suppliers in law by 2027 if the situation does not improve.

Across the Channel, legislation was introduced in the Netherlands in the summer of 2022 which limits the legal payment terms between big businesses and SMEs to 30 days. In the case of late payments, the SME can collect the statutory (commercial) interest. Over a year into this new law, it would be fascinating to examine the data on effectiveness in payment terms and possible knock-on to the Dutch economy.

I remain doubtful that Westminster will follow the Netherlands’ lead in this new review, regardless of the data, just as I would be surprised if, in the future, it adopted the FSB’s recommendation to bite the bullet and set 30 days into law by 2027. However, so far fostering a more positive culture of compliance against a backdrop of multiple challenges for British businesses is just not cutting the mustard. Putting another sticking plaster on a growing crisis and failing to make adequate reforms will not create the kind of growth and prosperity that will fix our ailing economy to match the Prime Minister’s own economic pledges, nor will it support entrepreneurialism or innovation. The UK Government would do well to note that the Institute of Chartered Accountants in England and Wales has just released its recent survey results which show that late payments are holding back businesses from investing. Hardly a recipe for growth.

In the spirit of political fairness, its best to reserve judgement until the full review is published when the devil will be in the details of the “tougher” changes proposed. However, for many small businesses, a lack of adequate system change could mean it’s too little too late to protect their businesses and ambition.

As a member of the Business and Trade Committee at Westminster, I’ll be writing to the Minister in the coming months once we have a clearer picture of the new measures’ impact or indeed lack of effect. If they are not working for business, then I agree with the FSB that a commitment to legislation such as exists in Holland must be the next step. Otherwise, the so-called “party of business” will be in the ‘business’ of putting people out of business.

​Douglas Chapman is SNP MP for Dunfermline and West Fife

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