The bill would pave the way to halve the current statutory payment limit to 30 days for all invoices and give new powers the Small Business Commissioner to impose fines on the worst offenders. It would also outlaw predatory practices such as early payment discounts and charges for including companies on preferred supplier lists.
“Late payment is crippling small businesses while the UK economy is crying out for investment,” said Lord Mendelsohn.
“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.”
Flagging up the bill, AAT head of public affairs & public policy, welcomed “meaningful action to end the scourge of late payment”.
He continued: “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.”
The Labour peer’s crusade harkens back to Tony Blair's New Labour government enacting the Late Payment of Commercial Debts (Interest) Act 1998, which created a regime where businesses could charge interest (the base interest rate plus 8%) on payments that were 30 days overdue.
The failure of this legislation to have any impact at all on the chronic state of business-to-business payments in the UK in the past 20 years indicates the scale of the challenge. Even if it were to pass, which is unlikely in the current circumstances, Mendelsohn’s bill is unlikely to make much difference.
Neither legislation nor culture change alone will be enough to alter the situation. What happens in the minds and on the frontlines of finance teams around the country is what determines payment behaviours. The prevailing attitudes to cash management are a scourge that adversely affects small businesses and need to change at source.
During the past year, Xero has been conducting extensive research into the subject, identifying in October 2019 that only 53.7% of UK small businesses were cash flow positive. Late payments were a major factor – the average delay was 39.22 days, rising to 42 days in January 2019.
If you’d like to get to the root of the UK’s chronic payment culture and learn some practical techniques for dealing with it, register for this week’s Accounting Excellence Talk on Surviving the post-Christmas cashflow crisis.
AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.