Proposals announced by the UK government to fine large companies who continue to pay small businesses late do not go far enough, according to UHY Hacker Young.
“Whilst a deterrent for businesses, these fines do little to help recipients of late payments,” said Peter Kubik, partner at UHY Hacker Young in an email. “For those small businesses who have already waited three months to get paid, the damage has already been done,” he added.
On Wednesday this week, the government announced proposals for a range of new powers for the Small Business Commissioner to tackle the problem of late payments. The issue of late payments has previously been likened to a crack-cocaine addiction for big business.
The new powers for the Small Business Commission would include compelling large companies to disclose information and payment terms and practices, imposing financial penalties or binding payment plans on large businesses found to have unfair payment practices. Other proposals include the prosecution of firms that do not comply with the Payment Practices Reporting Duty and holding company boards accountable for late payments.
Earlier, Small Business Minister Kelly Tolhurst heralded the proposals. She said they would “ensure that small businesses are given the support they need and ensure that they get paid quickly – ending the unacceptable culture of late payment.”
Small Business Commissioner Paul Uppal was similarly optimistic about the proposals. “During the first 16 months of my post I have been struck by the trepidation felt by small businesses when talking about late payment with their large suppliers. The government has a range of measures in place to tackle late payment and this consultation is a further step in the right direction to protect and support small businesses,” he said.
“I welcome any additional provisions which will strengthen the influence my Office has in tackling poor payment practice and levelling the existing playing field,” Uppal added.
However, Kubik was sceptical about the changes, calling for greater detail from the government before they can claim to have solved the problem. Indeed, there is still no clarity from the government on what specifically constitutes late payment, while the Prompt Payment Code remains voluntary.
“[The] new proposals do not get to the root of the problem as large businesses could still operate with lengthy payment terms. At present, there is no hard and fast definition of what ‘unfair’ payment terms are so a lot of businesses at the top of the supply chain could operate with 90-day terms. This can be tough on SMEs who have tighter margins,” he said.
“If these proposals go as far as explicitly defining how many days is too long to pay suppliers and what constitutes unfair or even grossly-unfair payment practices, then this will push real change,” Kubik said.
“There is also the worry of whether the fines will be substantial enough to deter large businesses from delaying payments to suppliers. The new approach relies on large businesses to self-report their payment practices and this will need to be closely monitored,” he added.