Main contractors face fines under moves to change payment culture

New UK Government measures aimed to change the payment culture of large companies have gained a mixed reaction from the business and construction sector.

Main contractors face fines under moves to change payment culture

Rules set out yesterday by the Department for Business, Energy & Industrial Strategy (BEIS) to protect smaller business from late payments include the capacity to fine or introduce binding payment plans for the worst offenders.

Company boards will now be held accountable for payment performance to small businesses, with measures forcing Audit Committees to report payment practices in company annual reports.

A new fund to encourage businesses to use technology to simplify invoicing, payment and credit management has also been proposed.

The government will consult on strengthening the powers of the Small Business Commissioner to hold to account the minority of larger businesses who fail to make payments on time.

Small business minister Kelly Tolhurst said: “The vast majority of businesses pay their bills on time, with the amount owed in late payments halved over the last five years. But as a former small business owner, I know the huge impact a late payment can have on the ability of a small business to plan, invest and grow.

“Small businesses are the backbone of our economy and through our modern Industrial Strategy we want to ensure the UK is the best place to start and grow a business. These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly - ending the unacceptable culture of late payment.”

The Federation of Small Businesses in Scotland welcomed the announcement and suggested that the Scottish Government could build on the outlined measures.

Andrew McRae, FSB’s Scotland policy chair, said: “Thousands of Scottish businesses close their doors every year due to late payments. That’s why FSB has campaigned long and hard for new action ensure that the biggest businesses step up and start paying their supply chain fairly.

“In time, we would argue that Scotland’s public sector could use the payment practises detailed in a company’s annual report to consider whether they should be awarded public contracts.

“FSB believes that today’s measures could be the catalyst that changes our lamentable payment culture. It must no longer be acceptable for big businesses to use their suppliers as a free source of credit.”

However builders have criticised the plan as too little too late and called for more immediate alternatives to help construction businesses struggling with late payment.

National Federation of Builders (NFB) chief executive Richard Beresford said: “Despite changes to the Prompt Payment Code, 50,000 businesses fail every year because of late payment. Even the department for business admitted that payment times are getting longer. How many more businesses have to go under before we make late payment a thing of the past?”

Nick Sangwin, NFB national chair, added: “These proposals for consultation will further expose the failure of the government to tackle late payment. It’s time to do the right thing and kill off late payment, rather than kicking the can down the road once again. Today’s announcement does not help small construction businesses who are about to go under because they are owed money. Nothing has changed for SMEs.”

Federation of Master Builders (FMB) chief executive Brian Berry said: “The government’s acceptance there is a serious imbalance of power between small and large companies when it comes to securing fair payment terms is a step in the right direction. FMB members are telling me that more than three quarters of their payments are late, which is clearly unacceptable. What is needed is a culture change in the construction industry so that late payment is no longer standard practice.

“Fundamentally, to rebalance market power for small to medium-sized companies (SMEs), the public sector should lead by example by breaking up contracts into smaller ‘lots’ and desist from the wholesale ‘bundling’ of contracts. This will help SMEs to act as the principle contractor. By introducing more competition into public sector procurement in this way, payment terms will improve as the balance of power is restored.”

He added: “What is encouraging is that that the consultation responses echo what we already know from FMB members, that the Small Business Commissioner isn’t being marketed enough.”

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