The government’s flagship assault on Britain’s late payment culture could end in a “car crash” unless the new rules are drafted carefully and, crucially, enforced, a former small business commissioner has warned. His evidence: thousands of firms are already breaking the payment rules we have, and not one has been prosecuted.
Philip King, who served as interim small business commissioner during the pandemic, said previous attempts to fix the problem had fallen flat largely because nobody enforced them. “Unless we enforce this stuff, do we go any further forward?” he said.
His warning lands as the government’s overhaul of commercial payment rules, billed as the most significant shake-up in more than 25 years, reaches the House of Lords on Tuesday.
For small business owners, the package promises long-overdue relief. Large companies will be required to pay smaller suppliers within 60 days, interest will fall due automatically on overdue invoices, so-called retentions will be banned in construction, and the small business commissioner will gain powers to fine companies that mistreat suppliers.
King, a veteran campaigner on the issue and former chief executive of the Chartered Institute of Credit Management, welcomed the reforms. But he cautioned: “The issue is going to be how the regulations are written. If they are drafted well, they have a good chance of success. If they’re drafted badly, then there’s a car crash.
“The secondary issue is interpretation. The move to a maximum 60 days is great, but what if companies currently on 30-day payment terms move to 60?
“There’s all sorts of risks, it needs to be done really carefully. And enforcement is really important. If there’s a clear set of rules and an accountability factor to it, I think that would push things forward.”
His scepticism is well founded. The UK’s largest businesses already have a statutory duty to report their payment practices every six months, and failing to do so is a criminal offence. Yet at best only around half of the companies that should be filing reports are doing so, thousands regularly breach the rules, and no criminal enforcement action has ever been taken.
The stakes for the SME economy are considerable. The government says slow and late payment costs the economy £11 billion a year and “chokes growth, costs jobs, and forces too many good businesses to close”.
There is a further gap that should give owner-managers pause. The new rules target the payment performance of large businesses, yet a substantial share of the problem sits between small firms themselves. “An awful lot of late payments are small company to small company, yet any business with fewer than 250 staff, which is the vast majority of UK companies, isn’t captured by it. It’s not all-encompassing and there’s a risk in that,” King said.
Peers will now try to toughen the bill. Lord Leigh of Hurley and Lord Sharpe of Epsom are due to propose amendments including more resources for the commissioner’s office, which can mediate on payment disputes, alongside measures to stop large companies delaying payments over ESG clauses and a ban on cryptocurrency payments as a contractual term.
Leigh, the co-founder of Cavendish Corporate Finance, said he would also support a “cold shoulder” provision under which the worst offenders would be shunned by government, including on public contracts.
A spokeswoman for the Department for Business and Trade said: “Too many big companies have simply not been paying on time for years. To fix that, we need to work with large businesses to make sure our ambitious reforms get small businesses the money they deserve. Our new legislation will give the commissioner stronger powers to investigate and fine companies that are not fulfilling their reporting requirements.”
