The Department for Business and Trade announces plans to tackle late payments

The Department for Business and Trade announced plans to reduce the late payments of business invoices on 2 October 2023. This follows the European Commission’s announcement, on 12 September 2023, of its own plans to combat late payments in commercial transactions.

The Government highlighted in its press release the impact that late payments has on both businesses individually and the UK economy as a whole. It is estimated that the economy could be boosted by £2.5 billion if small businesses were paid on time. The late payment of invoices is also one of the key barriers to growth that UK businesses, particularly Small and Medium-sized Enterprises (SME’s), currently face.

The new measures aim to provide businesses with predictability and stability in regards to cash flow and develop a stronger payment culture within the UK. These measures include:

Extending the Reporting on Payment Practices and Performance Regulations 2017 (SI 2017/395)

The Reporting on Payment Practices and Performance Regulations (“the Regulations”) aims to eliminate bad payment practices by increasing transparency. Under the Regulations certain business are required to publish information about their payment practices and policies, as well as its performance by reference to those practices and policies.

The Government, following consultation, plans to extend the Regulations which would currently expire in April 2024. The Government also intends to include new requirements to the Regulations, such as new metrics for reporting so that businesses and commentators can see the value of invoices, including invoices paid late and disputed invoices. In the construction sector, the Government plans to introduce reporting on retention payments for businesses.

Broadening the powers of the Small Business Commissioner

The Small Business Commissioner was set up by the Government, under the Enterprise Act 2016, and is an independent public body which tackles late or unfavourable payments within the private sector.

The Government plans to broaden the responsibilities of the Small Business Commissioner by enabling commissioners, on the basis of anonymous information and intelligence, to undertake investigations and publish reports where necessary. The implementation of this power would require primary legislation and as such be subject to the legislative timetable.

Greater advice to small businesses

By providing greater advice to small businesses, the Government aims to give businesses the tools they need to better manage their cash flow. The Government plans to advise businesses on how to negotiate payments terms that better suit them, as well as helping them use digital payment technology, which will enable the quicker payment of invoices.

Strengthening the Prompt Payment Code

The Prompt Payment Code (“the Code”) was established in 2008 and is a voluntary code of practice, administered by the Small Business Commissioner on behalf of the Department for Business and Trade. The Code sets standards for payment practices between businesses and their suppliers. Code signatories undertake to pay suppliers on time, give clear guidance to suppliers and to adopt and encourage overall good practice. The Government plans to strengthen the Code, by requiring signatories to reaffirm their commitment to the Code every two years in order to stay a signatory.

The new measures are to be included in the upcoming Prompt Payment & Cash Flow Review, which the Government should publish shortly.

If you have any questions in relation to  the new plans to tackle late payments please contact our  construction team for advice.