New legislation to tackle late payments introduced by Labour peer

New legislation to tackle late payments introduced by Labour peer

Legislation aims to deals with late payments “once and for all.”

New legislation to tackle late payments introduced by Labour peer

Labour peer Lord Mendelsohn has today introduced a Private Members Bill to the House of Lords aimed at addressing late payments and strengthening the powers of the Small Business Commissioner.

Lord Mendelsohn’s bill would legislate a 30-day limit for all invoice payments, enforced by the Small Business Commissioner which would have the power to impose large fines on repeat offenders.

In a statement accompanying the announcement, Mendelsohn said: “Late payment is crippling small businesses while the UK economy is crying out for investment. By failing to tackle late payment we are starving our small businesses of the capacity to act. The recent huge escalation in outstanding payments shows that decades of promoting ‘culture change’ has only made things worse. This Bill will tackle the issue once and for all with a package of measures that is operable, impactful and measurable.”

The Bill would also ban predatory payment practices such as prompt payment discounts (fast payment in exchange for a discount), charges for onboarding and staying on supplier lists.

Impact of late payments

Nearly a quarter (23%) of insolvencies in the UK are caused by late payments.

In a 2016 report, The Federation of Self-Employed and Small Businesses (FSB) estimated that if all payments were made on time there would be a £2.5bn boost to the British economy. This would have kept 50,000 businesses operating.

The same report found that the average value of a late payment invoice was £6,142 and more than a third (37%) of businesses reported running into cash flow problems, with 30% forced to use an overdraft. The average late payment has gone up to £8,500, according to figures published by Tide this year.

With a third of all payments to small businesses being late, SMEs spend more than a working week chasing late payments – totalling 56.4 million hours a year according to an Intuit Quickbooks report published in November 2019.

Addressing the problem

The Association of Accounting Technicians (AAT) has attempted to address this problem and made three recommendations:

  • That the Prompt Payment Code should be made compulsory for companies with more than 250 staff
  • That payment terms should be halved from a maximum of 60 days to a maximum of 30 days
  • That a clear, simple financial penalty regime for persistent late payers should be introduced and enforced by the Small Business Commissioner

A YouGov poll published by AAT last year found that 73% of MPs in the last Parliament backed the changes proposed by AAT.

“AAT has long campaigned for meaningful action to end the scourge of late payment”, said AAT’s head of public affairs and public policy, Phil Hall, in a press release. “Despite lots of noise from Government, they have only provided more bureaucracy, tinkering and an emphasis on voluntary measures. There is no reason why any business should be paying its suppliers in more than 30 days and the Small Business Commissioner must have powers to impose fines on persistent late payers. As a result, AAT very much welcomes the measures being proposed by Lord Mendelsohn and hopes other politicians, from all parties, back this important Private Members Bill.”

Resources & Whitepapers

How to optimise your compliance lifecycle

How to optimise your compliance lifecycle

5m
The new rules of accounting

The new rules of accounting

6m
5 ways internal productivity can boost your profitability

5 ways internal productivity can boost your profitability

6m
Crushing the Four Barriers to Growth

Crushing the Four Barriers to Growth

6m