The Government has begun to act on its election manifesto pledges by promising new powers to trade associations allowing them to tackle the issue of late payment.
Speaking in his home town of Bristol, Sajid Javid, secretary of state for the department of business, innovation and skills (BIS), outlined the Government’s plans to widen the powers for representative bodies to act on behalf of their members to “challenge grossly unfair payment terms”.
Mr. Javid also added that the Government will fulfil the manifesto pledge to set up a Small Business Conciliation Service to help small businesses settle disputes with larger companies.
Mr. Javid said: “There’s a situation familiar to small business owners up and down the country. A letter turns up from a larger customer changing payment terms, or charging them to remain a supplier, and in some cases even deducting that charge on the spot against payment owed. This pattern of behaviour is an outrage. It’s bullying – pure and simple.”
According to the Government, late payment is estimated to cost British businesses œ40bn in 2015, costing the average small business more than œ30,000.
Mr. Javid added: “You know as well as I what figures like that can do to the cash flow of small businesses. It’s enough to force a company into insolvency.”
The business secretary’s proposals have already gained support from the Federation of Master Builders (FMB), which approves of the Government’s focus on putting a stop to late payment practices.
Brian Berry, chief executive of the FMB, said: “Late payment has plagued the construction industry for far too long and I am therefore pleased that the new business secretary will be bringing forward legislation to tackle the problem in next week’s Queen’s Speech. Late payment by larger firms is a major barrier to small and micro firms forming part of the supply chain for public sector contracts – if we can solve the problem of late payment, we will also open up public sector construction to thousands of construction SMEs.”
However, Mr. Berry did express concern that the new measures may take time to be implemented. He said: “Mr. Javid has also touted the idea of widening the powers for representative bodies to act on behalf of their members to challenge grossly unfair payment terms. We eagerly await further details on this as it is often difficult for small firms to highlight poor payment terms directly without biting off the hand that feeds. This is partly why the problem has raged on for so many years.”
The latest measures follow actions taken by the last Government, which introduced legislation requiring the UK’s largest companies to report on their payment practices. Mr. Javid said the last Government also strengthened the Prompt Payment Code to introduce a maximum 60 day payment term, and brought in measures requiring all public sector contracts to pay out within 30 days.
Mr. Berry added: “The last government made some small steps in the right direction in terms of late payment. However, let me be clear – there is much more to do. At the end of last year, the FMB and National Specialist Contractors Council (NSCC) published research which showed that more than 90% of small construction firms agree contractual payment terms with their clients of 45 days or fewer, but only 57% of members actually receive payment within those terms.”