U.K. Government looking to legislate late payment penalties

I wrote a piece back in November on this, see The Unintended Consequences of Legislating Late Payments

In a December 2013 discussion paper titled Building a Responsible Payment Culture options were explored for taking further action on late and extended payment. These included

  1. creating increased fines,
  2. third parties reclaiming debt and
  3. other radical options.

Respondents were clear that, whilst they wanted to see a reduction in late payment, they did not want government to constrain their freedom of contract.

Today, the Small Business, Enterprise and Employment Bill is currently before the U.K. Parliament to enable the UK Government to subsequently introduce a prompt payment reporting requirement through secondary legislation. A discussion paper “Duty to Report on Payment Practices and Policies” recently welcomed responses up until 2 February 2015.

Why is this an issue? The Government notes that as of July 2014, the overall level of late payment owed to small and medium sized businesses was reported as standing at £39.4 billion, with the average amount owed to a small business at £38,200 (Source: BACS July 2014)

This is a complex issue. It covers both

  1. late payment against given contract terms, and
  2. unreasonably long terms themselves.

The paper mentions they do not propose to dictate payment practices, but instead to remove the opacity to payment information. They even provide a sample of what a large company would have to report on:


reporting bucket

They propose that companies report on a number of payment bucket metrics:

  • the proportion of invoices paid beyond terms;
  • the proportion of invoices paid over 30, 60 and 120 days; and
  • the average time taken to pay invoices.

The proposal requests information to be published on the company’s website, where this exists, and to include a description of standard payment terms, (including changes that occurred over the reporting period and unilateral retrospective changes); a company’s invoice dispute resolution process; e-invoicing; supply chain finance; and membership of voluntary payment codes.

Companies that are large companies, large Limited Liability Partnerships (LLPs), and all listed companies would be required to do this on a quarterly basis.

As I said in a prior post, before we go too far around legislating some standard number for payment, we need to look at some of the potential negative consequences of this potential law:

  • First and foremost, large corporations can just stop doing business with you. Remember, if you are not a strategic supplier, than you don’t have the leverage you may think you have.
  • Number two is that come time for contract renegotiation, small business may find certain terms change that are not favorable.
  • And finally, who will verify what a large company reports? If this is all self-reported, how can we fully trust the data? I mean, the time involved to produce these reports is not trivial.

Will the U.S. Government follow suit at some point with the SupplierPay initiative? Stay tuned as governments around the world look to find ways to help small companies.

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.