Late payments ‘crackdown’ leaves most limited company advisers cold

Invoice recovery experts say a code to replace a code; annual reporting changes, and a vow to consult, doesn’t add up to a ‘crackdown.’

Labour talking tough on late payments by unleashing what it calls a “crackdown” on the age-old “scourge” of SMEs isn’t tough enough.

Most limited company experts issued this criticism yesterday, partly as the crackdown’s showpiece, a new code, is still on the shelf.  

In fact, the Fair Payment Code won’t be introduced until autumn 2024, and even then, the code will be voluntary.

‘Good payment standards’

The FPC will award gold, silver or bronze status to companies that can prove they meet “good payment standards.”

But the FPC will cancel out and replace the Prompt Payment Code, launched in 2008 to encourage suppliers’ terms to be honoured.

Officials say “a number of issues” with the PPC (introduced under a Labour government), are now “affecting its effectiveness”.

Potentially confusingly, businesses will still be allowed to sign up to the PPC, but the code will be “suspended and eventually closed”.

‘Tough new laws’

As well as the new FPC, Labour announced on September 19th 2024 its intention to consult on anti-late payment measures.

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But it didn’t provide a date or details, beyond saying much more than it will consult on “tough new laws…[to] hold larger firms to account.”

Labour also vowed that big firms must do “payment reporting” in their annual reports, under rules to apply “in the coming weeks.”

‘Crackdown’

These three provisions — the code, the consultation and the payment reporting, make up the “crackdown.”

Alan Lowdell, who ran the finance arm of a staffing firm for eight years, believes “crackdown” must be a misprint in the government press release.

Or more likely, it’s an overstatement.

‘Ensure small businesses get paid’

“Is it me, or am I missing what the ‘crackdown’ is?” he asked.

“All I can see is that a new Fair Payment Code [will replace] the old Prompt Payment Code, and will be open to signatories this autumn.

“I also see [talk from Labour] of new company reporting rules for large enterprises, apparently taking effect shortly.

“What I don’t see is any legislative crackdown…that will ensure small businesses get paid promptly, on time, or by their agreed terms”.

‘Audit committee proposals’

The Prompt Payment Code stipulates suppliers get paid on time (as per their agreed terms) as one of its three founding principles.

Safe Collections, a B2B contractor debt collection firm, believes the PPC never had teeth in the first place.

The firm says the code’s 30-day term (signatories pay 95% of small trader invoices inside 30 days), should have been penalty-enforced.  

With a similar sense of regret, the firm’s Adam Home now says the new “audit committee proposals” are a bit off too.

‘Miss the mark’

“This latest proposal seems to miss the mark by only holding ‘larger firms’ to account,” Safe Collections’ boss told ITContracting.com.

“Even then, it’s only regarding their reporting practices. Instances of late payment between SMEs remain endemic.

“And unfortunately, this issue won’t be fixed by limited changes to statutory legislation.” 

Home clarified that one-person limited companies will likely welcome “attention” on the long-standing issue of being paid late.

‘Resolve payment disputes’

To come closer to ‘ending bad payment culture’ — as Labour claims its “crackdown” will achieve, he says there are better starting points.

“A swift and effective civil court system to resolve payment disputes [is desperately needed],” the Safe Collections’ director says.

“Similarly, the new government would do well to look at reinvigorating and radically reinforcing the Insolvency Service, Companies House and other parts of governmental business infrastructure.

“We need those two agencies to be more capable of properly supporting UK industry in the 21st century.

“And that means equipping them to clampdown on rogue directors and criminals, who currently seem to have carte blanche to operate.”

‘Takes months to get legal action heard’

Formerly the finance manager at Gattaca, Lowdell is sympathetic.

He says: “[We need late payers] held to account and swiftly dealt with.

“The new administration shouldn’t forget that when unpaid small companies are forced to take legal action, it takes months to get it heard.” 

But the government’s focus in the crackdown on speed is reserved for payment times.

‘Fair Payment Code’s gold award will aim to make 30-day payments the standard’

Liz Barclay, the Small Business Commissioner said: “A new Fair Payment Code will… include an ambitious new Gold Award which aims to make 30-day payments the new standard for which businesses can aim.

“We need sustainable, resilient businesses at all levels of the supply chains, to achieve the growth the economy needs.

“That means paying everyone from the largest supplier to the sole trader quicker so they have the confidence to invest, improve productivity and grow. Fair payment terms and on time payments are the key.”

‘365 days are not uncommon payment terms’

The Association of Independent Professionals and the Self-Employed says it welcomes the commitment to the new Fair Payment Code.

“We fully support the drive to 30-day payments,” the association’s head of policy Andy Chamberlain told ITContracting.com.

“And we hope the government will continue to apply pressure until this is the established norm.

“[But] we also need to focus on fair payment terms. 90,120 or 365 days are not uncommon contractual terms, so even when payments are made ‘on time’, they are still not paid until months after the work has been completed, which is unacceptable when paying a small supplier.”