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UK government’s ineffective new late payments legislation

UK’s Small Business Minister Kelly Tolhurst has announced that for the first time large businesses could be fined for failing to pay smaller suppliers on time as part of a robust (they claim) package of measures. Overall in the UK, the amount owed in late payments halved over the last 5 years.

UK government plans

Company boards will now be held accountable for payment practices to small businesses within their companies in a drive to increase transparency and accountability on late payments. Measures will force Audit Committees to report payment practices in company annual reports.

The government will consult on strengthening the powers of the Small Business Commissioner to hold to account the minority of larger businesses who fail to make payments on time. New powers could include compelling information and disclosure of payment terms and practices, imposing financial penalties or binding payment plans on large businesses found to have unfair payment practices.

Responsibility of the voluntary code of best practice – the Prompt Payment Code – will be moved to the Small Business Commissioner. This will put tools to tackle late payment under one organisation, ensuring the Commissioner has the powers to affect culture change in unfair payment practices.

The problem - relying on flawed data

This grand language hides the fact that the big problem with this is that all the measures are based around the current Prompt Payment Reporting which is well known to be flawed data. For example, the huge difference between payment times for SMEs and large suppliers isn’t picked up by the official data at all.

Paul Christensen, CEO and co-founder of Previse, said: “This is a positive step, but the key will be getting the details right. The current Prompt Payment Reporting can provide a misleading picture when it comes to SMEs, as there isn’t a requirement for firms to provide information on payments to SMEs and large suppliers separately. That means issues faced by small sellers, such as the fact they are paid around 60 days later than corporates, are obscured. Without good quality reporting, the Small Business Commissioner won’t be able to use his new powers effectively.”

Christensen then went on to plug the need for new technology: “The new measures include funding to help businesses use technology to improve payments. Solving this issue is not straightforward, but technology can provide new opportunities to finally make progress on slow payments.”

CTMfile take: Late payments are an evil symptom of today’s business culture and the UK government’s inadequate legislation is yet another example of how poor they are.

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