Late Payments to Small Businesses | Regulatory Reform

Late payments can prove fatal for small businesses, affecting cash flow, employment, hindering growth, and potentially forcing them to cease trading. What often goes unnoticed is that a single late payment can disrupt multiple businesses within the supply chain.

For years, the persistent late payment of business debts owed by large companies to small businesses has been deemed an intolerable aspect of trading practices. Consequently, the Government has taken proactive measures to eradicate the most flagrant and nefarious forms of poor payment practices.

The Reporting on Payment Practices and Performance Regulations 2017 (‘the Regulations’) were introduced to:

• increase transparency in payment behaviour to drive improvements in payment practices,
• assist suppliers by providing access to information needed when deciding with which companies they wish to trade,
• assist the negotiation of fairer terms,
• challenge large business customers to improve their payment practices,
• encourage a culture of prompt payment between companies and challenge larger UK businesses to stand by their smaller business partners.

The Regulations were reviewed at the end of 2023 at a time when:

• it was predicted that 99% of all firms in the UK were small businesses,
• it has been reported that late invoices totalling £23.4 billion are owed too small to medium across the UK.

Stuart Southall comments upon the position.

The Regulations state:

‘Duty to publish information on payment practices, policies and performance
3.— (1) For each reporting period, a qualifying company must publish a report containing the information set out in the Schedule.

(2) For the purposes of paragraph (1), to publish a report a qualifying company must publish it—

1. within the filing period, and
   
2. on the web-based service provided for the purposes of these Regulations by or on behalf of the Secretary of State.

Periods in relation to which information must be published

7.— (1) Subject to paragraphs (2) and (3), a qualifying company has two reporting periods in a financial year—

1. the first reporting period is the six months beginning with the first day of that financial year.
   
2. the second reporting period is the remainder of that financial year.’

The reports are provided to the public, enabling small businesses to research companies they may be entering contracts with.

Late Payments | The Prompt Payment Code

The Prompt Payment Code, established in December 2008, is a voluntary code of practice for businesses administered by the Office of the Small Business Commissioner and sets standards for payment practices between organisations of any size and their suppliers.

Those adopting the Code agree to:

• pay suppliers on time, within agreed terms,
• provide clear guidance to suppliers on terms, dispute resolution and prompt notification of late payment,
• support good practice throughout their supply chain by encouraging adoption of the Code.

At the end of 2023, proposals for reform were announced, which may lead to:

• more stringent investigations when the Code is breached,
• a value metric in company reports, which will show the value of invoices, including ones that have been paid, that are late and disputed invoices,
• businesses being required to report the total value of payments due in the reporting period,
• in respect of construction contracts, reporting including information on standard retention payment terms, and retention payment performance statistics,
• an increase of the Small Business Commissioner’s powers. It is expected that the Small Business Commissioner will be able to issue legally binding payment order, launch investigations and levy fines.

Consequences of Breach

If a company defaults:

• the breaches will be made public knowledge, and the company’s removal from the Register will be published online. This ‘name-and-shame’ tactic is intended to discourage companies from failing to pay invoices.
• if a company provides false or misleading information in its Reports, the company or its directors could face prosecution.
• if a company fails to file its Report within the allotted 30 day deadline, the company or its directors could face fines.
• if a small business is not paid on time or is subjected to unreasonable had disputes regarding its invoices, it may report the company to the requisite body.

How Can We Help?

Irrespective of the Regulations and the Code, small businesses will continue to experience cash flow challenges stemming from unpaid or disputed invoices. Alternative avenues for debt recovery remain available, including the presentation of a Statutory Demand, a Bankruptcy Petition, or seeking a winding-up order.

The experienced team at KANGS brings a wealth of expertise garnered from years of aiding clients in various commercial disputes, encompassing debt-related matters. We are ready and eager to lend our support to you, simply call or email us using the information below:

Telephone: 0330 370 4333

Email: info@kangssolicitors.co.uk

Stuart Southall
Partner

Tim Thompson
Partner

Naz Maqsoom
Associate

Top ranked by leading legal directories Chambers UK and the Legal 500.