The Late Payment of Commercial Debts - Is fresh salvation on the horizon?

The Small Business Commissioner and Late Payments etc Bill started its journey through Parliament this year. It will seek to sharpen the teeth previously given to SME’s under the Late Payment of Commercial Debts (Interest) Act 1998 and other enactments to “create a responsible payment culture” and to “hold to account” those “who fail to make payments on time”.

Summary of key clauses

Part 1: Amendments to the Late Payment of Commercial Debts (Interest) Act 1998

• There will be a maximum 30-day statutory limit for payment of invoices by all businesses matching the obligation on public authorities
• A 30-day limit to resolve payment disputes will be put in place – only extendable by agreement.
• Purchasers of goods or service will have a 21-day period from the delivery of the service or invoice date (whichever is the latest) in which to notify the supplier of any dispute payment. If a resolution is not agreed within the 30-day resolution period, either party may complain to the SBC.
• Disputes in the construction industry may also be referred to the SBC, necessitating an amendment to the Housing Grants, Construction and Regeneration Act 1996.
• A duty will be imposed on purchasers to pay statutory interest and late payment costs compensation automatically at the point of paying a late invoice. This replaces the current discretionary right available to suppliers to seek enhanced interest and costs compensation, (Such rights are not currently always used for fear of upsetting the business relationship).
• The interest rate applied in cases where non-payment has exceeded 60 days or when required interest was not paid at the time of invoice payment will be increased from 8% above Bank base rate by a further 50%. (Thus 12.15% as at June 2020)

Part 2: Amendments to the Enterprise Act 2016

• The remit of the SBC will be expanded to include public contracting authorities and construction businesses.
• The SBC will be empowered to impose penalty notices on larger businesses or public contracting authorities for persistent late payment, non- compliance, misreporting of payment performance data, or for failing to assist the SBC in any of their investigations.
• Consistent with the Data Protection Act 2018, the SBC may impose a  maximum financial penalty on persistent, late paying large businesses. This could equate to fines of up to £10m, or 4% of annual worldwide turnover, (whichever is higher). Similarly, the maximum penalty for public contracting authorities is £1,000,000.
• Big Businesses and Public Authorities will be ‘named and shamed’ via the publication of payment performance data by the SBC each year.
• Banning of unfair payment practices, including ‘Prompt payment discounts’, ‘On-boarding’, ‘Pay-to-stay’ practices and any Contractual clauses that seek to prevent suppliers from ceasing work for non-payment.

Part 3: Amendments to other laws

• A duty is imposed on auditors to report on the accuracy of late payment data reported by their client. Auditors will also be liable for any misreporting or non-compliance of this duty by their clients.
• Similarly, Public Authorities must publish details of their annual compensation liability and the total number of invoices not paid on time.

Part 4: The Introduction of Project Bank Accounts in the construction sector

• Public Authorities will need to establish Project Bank Accounts (PBAs) in respect of construction projects in excess of £500,000. PBAs would ensure that all monies would be held in a separate account, so that all contractors in the supply chain have their payments protected in the event of insolvency. This means that a contractor’s insolvency practitioner will not be able to have access to the funds in the PBA.

Should you wish to discuss any of the issues raised please do not hesitate to contact the writer Graeme Weir via gjw@kingsfords.com or by telephone – 01233 648406. Graeme specialises in the recovery of all business sector debts and would welcome the opportunity to pick up the baton on your behalf, should your customers or clients fail to discharge your invoices.