Plans to Change the Culture of Late Payment by Big Businesses

The Business Minister Matthew Hancock has announced changes to the Small Business, Enterprise and Employment Bill 2014-2015, which will see big businesses required to report their payment records every three months. The amendment to the Bill, which is currently passing through Parliament, is an attempt to change the culture of the late payment of invoices by large, powerful businesses.

Quarterly reporting requirements

Under the proposal, publicly quoted companies and larger private firms will be required to publish quarterly public reports that detail either the percentage or value of invoices paid later than 30, 60 and 120 days. The average payment time, and proportion of invoices paid after the date agreed with the supplier, should also be recorded.

While the requirement to report will fall on all publicly quoted companies, under the present plan, a threshold test will be introduced for private firms. A private company will fall within the scope of the reporting requirement if it meets two of the three proposed benchmarks: If it turns over more than £25.9m per annum; if the company employs more than 250 staff; or if the company has a balance sheet worth over £12.9m.

Increasing transparency

The proposal is the Government’s response to feedback from an earlier consultation, where a clear majority of small businesses indicated support for increased transparency. Commenting on the proposal, Mr Hancock outlined the problem that late payment can cause to smaller companies: “Tackling late payment is at the heart of our drive to help small businesses. Coming from a small business background, I know just how critical late payment can be for small firms’ cash flow.” The change seeks to help small businesses by removing the onus from them needing to take redress action for late payment, to them being able to decide beforehand whether to enter into business with certain companies. It is hoped that by making more information available, big organisations will lose their dominant bargaining position, with smaller suppliers able to identify good or bad payers, and then to make an informed decision as to whether to contract.

Mr Hancock explained: “We know that small businesses are often reluctant to risk losing business by using the redress measures we’ve put in place, so we want to tackle the underlying culture by increasing transparency on payment practices and performance. The measures we are consulting on will make it clear to small businesses and consumers alike which large businesses behave properly, and those that think they can ride roughshod over their suppliers.”

This may be the first of many changes introduced to help small businesses prosper. The Government is asking for industry input as to how best to define and record disputed invoices, and may also look at requiring firms to set out their standard payment terms and supply chain finance terms. The introduction of a voluntary scheme of membership to payment codes is additionally under discussion.

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