Government crackdown on late payments for SMEs

Many construction SMEs will understand the challenge of receiving late payments, and will welcome the UK Government’s new proposal to tackle late payments through fines and payment plans.

When we spoke to SMEs earlier this year, over a third cited difficult payment terms as a business challenge. Unfortunately, late payments are a major issue within the construction sector, and while it’s a problem that affects businesses across the industry, small and medium-sized enterprises (SMEs) are often the most vulnerable to cash-flow issues as a result of late payment.

Considering the devastating impact high profile company failures, such as Carillion, have had on smaller businesses, it’s unsurprising that SMEs are so concerned about late payments. It’s vital for smaller construction businesses to get more support in this area, and the Government’s latest proposal certainly seems to be a step in the right direction.

What will change?

 The Government has introduced new rules to hold company boards accountable for their supply chain payment practices for the first time. Under the new legislation, Audit Committees will be required to report payment practices to small businesses within their annual reports.

The Government is also consulting on giving new powers to the Small Business Commissioner. They have proposed giving the Small Business Commissioner the tools to compel large companies to disclose their payment practices through the existing Payment Practices Reporting Duty (PPRD), such as the ability to impose fines or prosecute those that don’t comply. Responsibility for the voluntary code of best practice, the Prompt Payment Code, will also be moved to the Small Business Commissioner.

In an effort to encourage businesses to use technology to make invoicing, payment and credit management processes as simple and efficient as possible, the Government has also proposed a Business Basics Fund competition of up to £1 million in funding.

Will construction SMEs benefit from this move?

 While the full outcome of the Government’s proposal won’t be known until they hold the consultation later this year, it’s definitely encouraging to hear that they are considering new ways to hold larger businesses to account for poor payment practices. We’re hopeful that if the Small Business Commissioner is given the power to penalise those who aren’t complying with the PPRD, large companies will be forced to ensure they’re not paying their suppliers late.

However, these measures alone aren’t likely to completely solve the payment problem for construction SMEs. The Federation of Master Builders (FMB) found that over three quarters of their members’ payments were late, which shows that a real culture shift is needed around payment within the construction industry. So further action from the Government will be necessary if SMEs are to gain a level footing with their larger peers.

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