Wednesday, 26 August 2015 14:51

PLC Payment Practices and the Small Business Act 2015

The payment practices of the UK's biggest companies have been under scrutiny for a while now, with voluntary efforts such as the Prompt Payment Code attracting criticism for being 'toothless' in terms of enforcement action.

Meanwhile though, nobody really wants to see a situation where it is mandatory to take late payers to court, or to enforce penalties and interest - after all, sometimes you might simply want to extend the deadline as a gesture of good faith to a valued customer.

Where the big brands are concerned though, there are two main areas of concern: first, the standard payment terms they demand, which can be six months or even more in some cases; and second, their promptness at paying, given their vast resources and huge profits.

Under the Small Business, Enterprise and Employment Act 2015, new measures aim for a middle-ground solution, by forcing big brands to publish details of their payment practices, which in turn should allow their smaller suppliers to negotiate fairer payment terms.

In effect, payment practices and terms are being brought out of the shadows and into the light, creating a new kind of 'competition' between the big brands to offer the best payment terms to their suppliers.

The Act includes other provisions to make firms' practices a matter of public record, including on issues such as paying the minimum wage, and hiring staff on controversial zero-hours contracts.

Business secretary Vince Cable said: "The Small Business Act will create the right environment for small businesses to continue to thrive by giving them greater access to finance to help them innovate and grow, and make it easier for them to export goods and services made in Britain.

"The Bill's measures also mean there is nowhere to hide for firms who do not play by the rules, whether by abusing zero-hours contracts or not paying the minimum wage."

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Public Opinion

Any change like this is generally consulted on by the government, and this one in particular follows several rounds of consultation. The BIS reports:

"Respondents to the Building a Responsible Payment Culture discussion paper were clear that, whilst they wanted to see a reduction in late payment, they did not want government to constrain their freedom of contract. Instead, they transmitted a clear desire for greater transparency around payment practices."

In the latest consultation, there was support for the proposal to apply the rules only to B2B contracts, and not to include financial services contracts.

There was also majority support for the suggestion that the rules should only apply to big businesses - including large UK companies, large LLPs and all quoted companies.

A minority called for the rules to also apply to SMEs and the public sector, although it's worth noting that many of the respondents were big brands themselves, who are likely to be put on the back foot once this legislation comes into force.

Interestingly, the proposal to make it a criminal offence to fail to report the relevant data on payment practices was more controversial - just 24% supported it.

However, there was wider support for criminal convictions of repeat offenders, indicating the extent to which people in business consider poor payment practices to be an offence in their own right.

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