Does the UK need a culture of prompt business payments?

Does the UK need a culture of prompt business paymentsAlthough the majority of businesses pay their bills within the timescales permitted through UK employment law, there is a problem with late payments within corporate transactions. Countless businesses and self-employed individuals go through serious financial difficulties every year because of late payments, which stops these parties from investing, promoting jobs creation and contributing to the economy of the UK.

Therefore, the Department for Business, Innovation and Skills held a UK law review on late payments. It looked into what could be done to enhance transparency and accountability to change business culture, how small businesses can be helped to deal with the consequences of late payment, how small businesses could be encouraged to use their statutory rights under UK business and employment law, and whether these rights should be enhanced.

The government consultation ran from December 7th 2013 to January 31st 2014 and the government will reveal its response to the UK law review in the months to come.

CBI responds to government prompt payment consultation

Responding to this consultation on January 31st, the Confederation of British Industry (CBI), the UK’s largest business lobbying organisation, called for a “universal culture” of fast business payments.

Currently, the average business is owed £31,000, with the overall nationwide late-payment debt reaching over £30 billion. Current economic conditions could mean these debts create serious problems – the economic recovery is picking up and order books are beginning to increase, which could put working capital under pressure, the CBI warned.

CBI Director for Competitive Markets Matthew Fell said it is “unacceptable” for companies to be prevented from creating jobs and growing because they are owed money.

Some of the changes to UK employment law and business law that the CBI proposed include:

–  Establishing a target minimum payment term under UK business law, with this term offering larger and complicated contracts a degree of flexibility

– Asking companies to post supplier payment policies online in a ‘comply or explain’ voluntary scheme

– Developing collaborative supply chains to avoid heavy-handed regulation of payments

– Setting up an ‘upper tier’ under the Prompt Payment Code for firms that wish to meet higher standards, for example by paying bills in shorter timeframes or by reporting payment processes in detail

– The government defines the term ‘grossly unfair’ in UK contact law so businesses can negotiate payment terms in confidence

While the UK law review into payment terms was broadly welcomed, the CBI warned that onerous new rules could have unintended consequences for the nation’s economy, putting it on an uneven international playing field and potentially seeing firms in the country lose contracts to overseas competitors. Some of the suggestions it said could lead to this outcome include the introduction of a payment terms enforcement agency, developing maximum mandatory payment terms, and blacklisting suppliers, with the CBI stating that these recommendations ought to be rejected.