Late payers to be named and shamed under new proposals
Large businesses could be forced to reveal their payment practices in an effort to reduce late payment of commercial debts according to new proposals from business secretary Vince Cable.
Mr Cable said: "For too long too many large companies have been getting away with not paying their suppliers on time to maximise their profits. It is small business that is suffering as a result and it needs to stop. We will now make it compulsory for large companies to publish information about their payment practices so that those who are not playing fair can be held to account."
Pearson Solicitors Commercial Litigation Partner, Christopher Burke said: “Naming and shaming larger companies is a forward step, but more needs to be done to create a responsible payment culture and increase accountability.”
“It is small businesses that bear the brunt of the poor payment practices by effectively providing interest free credit to larger businesses that don’t pay within the 60 days guidelines. Any measure to help small firms get paid on time is to be welcomed yet previous initiatives have proved ineffectual – a late payment levy could help.”
Pearson Solicitors’ specialist commercial debt recovery team regularly works for smaller firms to ensure they are not disadvantaged by the late-payment syndrome.
Mr Burke added: “Even lengthy agreed payment terms are not followed, with suppliers being left with the dilemma of deciding to wait for overdue payment or enforce their agreed terms aggressively through a debt recovery services such as ourselves.”
The government will also work with the Institute of Credit Management (ICM) to implement the Prompt Payment Code.
John Allan, national chairman of the Federation of Small Businesses (FSB), said: "Small businesses can no longer be expected to lend interest free to large businesses. A key test will be whether the big companies who sign up to the Prompt Payment Code actually now start to pay within 60 days, something they should be doing under the existing EU Directive.”
Tough on late payment
He added: “We need to see more of the detail in today's announcement because small businesses need tough action from the government on late payment."
The ICM also called for more clarity from the government. Although it welcomed the measures, it said that the Department for Business, Innovation and Skills (BIS) has "ducked the issue" regarding the rights of business to challenge "grossly unfair" terms by failing to define what grossly unfair terms might be.
Philip King, ICM chief executive, said: "There clearly comes a point when the terms of payment should be deemed unfair, for example when they are imposed by the buyer without consultation or negotiation, when they are retrospectively applied to contracts already in place, and/or where they are demanded in circumstances that will clearly be to the detriment of the supplier and exploiting the weakness of his bargaining position. We articulated this view in our official response, but it appears the issue has been ducked."Subscribe to our newsletter
Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.
This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.