Late Payments

Late payment can be the bane of a business’ life, especially for small businesses. The government says that in 2022, small and medium-sized enterprises were owed on average an estimated £22,000 in late payments and that paying small businesses on time could boost the economy by £2.5 billion annually. Within a couple of weeks of each other, both the Department for Business and Trade (DBT) and the EU announced proposals to improve this area of supply chain management. Here in the UK, on 2 October 2023, the DBT announced a number of new measures to address the late payment of commercial invoices:

  • extending the Reporting on Payment Practices and Performance Regulations 2017. In-scope businesses must publish information about their payment practices to increase transparency and, it is hoped, improve payment practices. The government’s proposals would add new reporting requirements to report on the value of invoices paid late, disputed invoices and retention payments for businesses in the construction sector.
  • adding to the powers of the Small Business Commissioner to allow the Commissioner to conduct investigations and publish reports where necessary on the basis of anonymous information and intelligence.
  • giving more advice to small businesses on negotiating payment terms and using digital payment technology to manage cash flow.
  • promoting the benefits of digital payment technologies and of embedding prompt payments as part of businesses’ ESG (environmental, social, governance) programmes.
  • adding a requirement to reaffirm commitment to the voluntary Prompt Payment Code (under which businesses and public bodies agree to pay suppliers on time and fairly) every two years to stay on it.

Meanwhile, on 12 September 2023, the European Commission announced a proposed new regulation to deal with late payments in commercial transactions. Replacing the Late Payment Directive (2011/7/EU), the new regulation would include:

  • a maximum payment term of 30 days for commercial transactions, which parties can’t contract out of;
  • automatic rights to late payment interest and compensation fees, which can’t be waived; and
  • enforcement authorities in each member state to monitor compliance, initiate investigations and issue sanctions against late payers.

The new regulation will, if adopted, affect UK businesses trading within the EU.

Gillian Harding