July 1, 2019

Company Directors to be held accountable for late payments

News Article

The Government has confirmed that it will fine businesses who persistently fail to pay suppliers on time and has said company directors will be held responsible for late payments.

The new rule forms part of a packet of measures designed to level the playing field between the smallest and largest businesses.

It comes after research revealed that some 50,000 small businesses are forced to shut their doors every year, with many of those attributed to poor cash flow and persistent late payments.

According to the latest statistics, published by the Federation of Small Businesses (FSB), more than eight in 10 (84 per cent) small firms report being paid late, while over one in three (33 per cent) said at least a quarter of all payments they are owed arrived later than agreed.

Likewise, Xero, the cloud accounting platform, found that the average small business is owed almost £25,000 in unpaid invoices, equivalent to 11 months’ average staff wages.

In last month’s Construction and Engineering Bulletin, we reported that, from September 2019, new rules could mean major contractors that fail to settle 95 per cent of their invoices within 60 days, will be blacklisted from major public sector contracts.

However, a further announcement by the Small Business Commissioner (SBC) and the Department for Business, Energy and Industrial Strategy (BEIS) has provided additional clarification to the rules, stating that 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”.

The measures will also force Audit Committees to report payment practices in company annual reports, or whenever they are requested to by a regulating body, such as HMRC.

Commenting on the report, Small Business Minister Kelly Tolhurst said: “The vast majority of businesses pay their bills on time, with the amount owed in late payments halved over the last five years. But as a former small business owner, I know the huge impact a late payment can have on the ability of a small business to plan, invest and grow.

“These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly – ending the unacceptable culture of late payment.”

Mike Cherry, National Chairman of the FSB, added: “Small businesses will be delighted with the announcement. FSB has worked very hard with government to create a whole-board approach to late payment within the UK’s large companies, and empower Audit Committees to look after the supply chain.”

Adam Davis, a Partner in Palmers’ Construction team and a Construction Disputes Adjudicator, said: “This is welcome news, given that cash flow is the lifeblood of commercial construction projects. Any initiative which helps to protect small businesses and sub-contractors from the burden of bad debt is a positive step.

“Late payments often build up rapidly and can quickly have disastrous consequences. A ‘culture change’ to combat the crisis of late payments is long overdue and we can only hope that the small business commissioner’s recommendations are put into action as swiftly as possible.”

Adam added: “Palmers provides a debt recovery service and a fixed-fee adjudication scheme that is straightforward, effective and can help your business deal with its invoice debts quickly and efficiently.

“Such services are vital at a time when there appears to be no end in sight for the late payments crisis.”

For more information about how Palmers can help, or to find out more about our Debt Recovery and Fixed-Fee Adjudication Scheme, please contact us.