Tuesday evening saw me at Plaisterers Hall in London for the Fair Payment Celebration, a project that’s been worked on for literally years, first by Liz Barclay and more recently by Emma Jones in their roles as Small Business Commissioner. This week is the culmination of that work which promises to legislate to ensure SMEs are paid on time.
The status quo is wasteful, unproductive, drives small businesses to the wall, and holds back the potential of small businesses as an engine of economic growth. Make no mistake – we are going to fix this problem. It’s time for the UK’s small businesses to be paid on time. It’s time to pay up.
– Peter Kyle, Secretary of State for Business and Trade and President of the Board of Trade
The Small Business Commissioner is going to be given powers to investigate businesses suspected of poor payment practices, settle payment disputes outside of the court process, and the power to fine businesses, including significant potential fines for large companies that persistently pay their suppliers late or fail to comply with late payment legislation.
The measures the Government has announced today will strengthen the role of my office in taking on the worst payers alongside ensuring small businesses have a stronger voice on payment terms and late payment interest.
– Emma Jones CBE, Small Business Commissioner
These are by no means trivial measures – the government are serious about tackling the problem, so will legislate to:
- Impose maximum payment terms of 60 days to ensure that smaller businesses are paid in a maximum of 60 days.
- Make it a requirement that all commercial contracts will contain a right to statutory interest at 8% above the Bank of England base rate
This isn’t just a desire for SMEs to be paid within 60 days, the legislation will make it illegal to create contracts which specify longer payment terms – fantastic news for small businesses who supply larger businesses and the end of those who insist on 90 or 120 day payment terms.
While fines will be punitive, speaking to Minister Blair McDougall he described the interest as a ‘structural change to the way businesses operate’. Whilst in the past, businesses may have looked at late payments as a simple way to exploit cash flow for free, 8% above today’s base rate of 3.75% means that for every outstanding invoice business will be paying 11.75% interest to their small business debtors. That turns late payment from a free cash flow to a very expensive burden to encourage fair payments.
Minister McDougall was also keen to point out that this legislation will put the UK at the forefront of both the EU and all G7 countries. The UK will be a leader in fair payments for SMEs and the desire is that other countries will follow suit in the future – which would be great news for those who bill overseas businesses.
The other point to note is that 60 days isn’t a goal, it’s an absolute maximum. The real desire would be to see payments made much more speedily – the figure of 30 days was bandied about. 60 days in legislation is simply to allow leeway to pay significantly faster and payments taking 60 days should be ringing alarm bells as it’s one day away from interest and penalties being applied.
The evening ended with a celebration of businesses who who are already meeting the requirements of this new proposed legislation, with awards handed out by the Secretary of State, Peter Kyle (pictured above).
