Government inches towards progress on late payments

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The Government is again consulting on how best to tackle late payment. Is this finally the chance for effective action to be taken to deal with a multi-billion pound problem or yet another stop on a long journey of endless false dawns?

Since 2017, AAT has actively campaigned for changes to address the serious problem of late payments in the UK.

This has primarily focused on the existing Prompt Payment Code, a voluntary agreement to which AAT and 2,500 other UK businesses have signed up to in order to demonstrate their commitment to paying all invoices promptly.

There have been some well-documented problems with the Code.

A number of very large companies signed up to the Code but subsequently ignored the commitments and were not in any way punished. This has led to some improvements with a handful of companies being “suspended” until they meet what are frankly less than challenging maximum payment terms of paying 95% of invoices within 60 days.

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The late payments problem was already a huge challenge prior to the Coronavirus pandemic – responsible for a quarter of all insolvencies, starving businesses of investment and productivity, often leading to mental health issues for those not receiving payment and often leading to job losses when a lack of payment meant small businesses, in turn, could not pay their staff. It is little surprise that this situation has dramatically worsened as a result of the pandemic.

Despite widely publicised, high profile promises from the likes of Morrisons Supermarkets to pay its small suppliers within 48 hours, these gestures have proved the exception rather than the rule.

In July 2020, research from Close Brothers Asset Finance indicated that more than half (57%) of businesses had seen an increase in late payments because of the pandemic whilst almost a third (32%) had felt compelled to delay payment. Worryingly, 7% said they were unable to make any payments at all.

In light of the deepening late payment crisis, AAT’s long-standing recommendations for change have taken on additional impetus. The three simple changes AAT has been pressing for are:

  1. maximum payment terms under the Prompt Payment Code to be halved from 60 to 30 days. This means that companies who signed up to the Code would have to pay at least 95% of their invoices within 30 days
  2. making the Code compulsory for all organisations employing more than 250 people, whether public, private or third sector
  3. giving the Small Business Commissioner the power to impose financial penalties on persistent late payers (he currently has no powers other than to influence and to name and shame)

In December 2018, these three recommendations gained the support of 73% of MPs in YouGov polling commissioned by AAT.

They were also adopted as recommendations by the BEIS Select Committee and have been supported by the construction, recruitment, fashion, finance and accountancy industries.

Unfortunately, the Government has taken little notice.

In 2017, Government introduced a payment practice reporting requirement on large companies, but this was riddled with loopholes and has proven wholly ineffective.

In 2019, Government announced a handful of changes, the most significant supposedly being an obligation to hold company boards to account for their payment practices. This package was widely derided by small businesses and again had led to no real change.

The latest of many consultations on the issue was launched earlier this month.

Regrettably the Government has again failed to propose the Code be compulsory for large organisations employing over 250 staff, it will remain wholly voluntary. It has also failed to offer any financial powers for the small business commissioner.

Just one real change is proposed; that payment terms be halved to 30 days under the Prompt Payment Code – but not for all businesses, some can continue to pay within 60 days.

This is certainly a step in the right direction, but as AAT will never tire of stating, ALL companies should pay and be paid within 30 days. A 30-day maximum for all companies is simpler, fairer and will be more effective.

If you are concerned about the issue of late payments, or know someone who is, please complete the Government’s short survey before Friday 16 October 2020.

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Phil Hall is AAT's Head of Public Affairs and Public Policy.

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