Nearly a quarter of UK businesses report that late payments threaten their survival. The Federation of Small Businesses reports that the problem goes beyond just paying late. It encompasses practices like retrospective discounting and ‘paying-to-stay’, which sees smaller companies paying to be retained as suppliers without any promise of work.
If no explicit terms for payment are agreed, then legally, payment is assumed to be due after 30 days for the purpose of charging statutory interest. At present, a government-sponsored voluntary Prompt Payment Code exists, requiring signatories not only to pay within 60 days – in line with legal requirements – but also to work towards payment within 30 days. Some large businesses now have to report on their payment terms and practices, to allow other businesses to check their payment track record before taking on work. The government also encourages recourse to the Small Business Commissioner, whose office helped small businesses recover over £2 million in unpaid invoices last year. It will now also have input into the Prompt Payment Code.
The government is looking into new ways to require large firms to pay supply chains promptly. Ensuring company boards have responsible payment practices in place throughout their supply chain is one area under consideration. So, too, is helping small businesses pro-actively manage the payments process, using state-of-the-art accounting software. This is an area in which we would be happy to advise.
This publication has been prepared by RRL LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.