Last month the Department for Business, Energy & Industrial Strategy announced it was consulting on the powers needed to enable the Small Business Commissioner (the SBC) to resolve late payment issues for thousands of small business, writes Karen Bright, Head of our Litigation & Dispute Resolution teams.
This has been one of the most frequently vexing issues for small businesses for decades, and you might ask why has it taken this long to receive government attention?
According to the government’s press release currently £23.4 billion worth of late invoices are owed to small firms across Britain, impacting on businesses’ cash flow and ultimate survival.
The government is seeking to create a culture of prompt payment in UK business. This is essential to enable small businesses to succeed, creating jobs, driving innovation and supporting their community.
The consultation looks to give new powers to the Small Business Commissioner including:
- the power to order companies to pay their suppliers, either as a lump sum or agreed payment plan, when a complaint against them for late payment has been investigated and upheld. Companies which do not do so could face further penalties, including fines. This will give a clear incentive for companies to pay their suppliers on time.
- the power to compel companies to share information during an investigation by the SBC. This will ensure cooperation with SBC investigations and provide more information about company payment practices.
- the power to launch investigations into suspected bad payment practice, without the need to have first received a complaint from a small business.
- expanding the scope for complaints to the SBC, to allow the Commissioner to investigate complaints about other businesses relating to payment matters in connection with the supply of goods and services.
- to review and report on wider business practices outside of payment matters, on instruction of the BEIS Secretary of State. This could be a practices unrelated to payment matters specifically impacting small businesses such as supply problems, or broader issues like barriers to the adoption of payment technology.
- the power to claim investigation costs from an investigated company when there are adverse findings against them.
We know that paying small businesses late is debilitating, and the practice has increased during COVID-19. It deprives small firms of cashflow, holds back growth, undermines productivity and forces many to take out external finance.
Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), is one of those who will be delighted to see the government take action: “In thousands of cases a year late payment causes the closure of small businesses. It is therefore more important than ever to wipe out this poor payment scourge. The proposed new powers would give the Small Business Commissioner some teeth to investigate bad practice more easily and punish it more severely, and it is very welcome to see these plans being put forward for consultation.”
According to the Federation of Small Businesses (FSB), around 50,000 small companies close each year due to late payments.
With many UK businesses continuing to struggle with the impact of coronavirus, this is now an especially urgent issue.
The Office of the Small Business Commissioner was established in 2017 by the previous government to address the issue of late payments. Since then, the SBC has claimed £7.5 million owed to small businesses and publicly named 8 companies for poor payment practice.
The consultation will run until 24 December 2020. Businesses are invited to share their views here.
If you would like to have a confidential discussion about some of the decisions you may be facing please contact me via email@example.com or call me, on 0207 7079 2410.
The above is accurate as at 10 November 2020. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.