Tougher rules touted to tackle late payments

28/01/2020

Ask any business owner about their biggest operating problems and late payment of invoices will almost certainly feature highly on any list of complaints. Strong cashflow is after all the lifeblood of all small businesses, so it is heartening to see tougher rules on the cards to tackle late payment of commercial invoices.Legislation covering the position is well established. The Late Payment of Commercial Debts (Interest) Act 1998 provides that when payment for the provision of goods or services remains owing in a business context beyond its due date, or for a fixed period after the supply has taken place where such period is not specified, interest accrues at the rate of 8% above the Bank of England base rate.

The Small Business Commissioner and Late Payments etc Bill 2019-20 aims to build on the statutory mechanism further. At its first reading in the House of Lords the headline provision is a reduction of the period when statutory interest starts to run to 30 days.

But before matters reach this stage, the Bill introduces a statutory mechanism by which parties can attempt to resolve payment disputes including a statutory time limit to reach a resolution. If unsuccessful, the matter is then referred to the Small Business Commissioner, whose role is further defined in the proposals.

Even if invoices are paid on time the Bill proposes to address a number of current payment practices. Not only could this affect the prevalence of prompt payment discounts, but it the Bill extends to outlawing contractual provisions preventing the cessation of work for non-payment. The implication is that if a supplier goes unpaid, it could down tools during the life of the contract without the fear of causing a contractual breach by its actions.

The Bill contains a warning for the worst offenders, since it introduces an obligation on auditors to report on each organisation’s payment performance, thus allowing any potential supplier to see how quickly they can expect to be paid. Although encouraging, this will only apply to those larger companies subject to an annual audit, and not any of the millions of those smaller entities below the audit threshold.

Although the Bill is only at the first reading stage and there is no guarantee that it will make it into law in its current state, the fact that it has already received cross party support is encouraging. In the meantime, small businesses with payment concerns remain advised to ensure that their contracts are clear on the expected payment terms and to ensure that all customers are aware when payment is due.

More information

If you would like to find out more information on protecting your business from late payments, please contact a member of our Company & Commercial Team.This article was written by Edward Garston, Partner in the Company & Commercial Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of January 2020.

28/01/2020

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