The government has announced significant changes to the late payment law to protect smaller suppliers.
It has empowered the small business commissioner to investigate poor payment practices, adjudicate payment disputes, and hand out multi-million-pound fines to those who fail to comply with the new laws.
The changes include a 60-day cap on payment terms for all large firms when paying smaller suppliers and a mandatory interest rate on late payments – all commercial contracts must include a statutory rate of 8% above the Bank of England base rate.
The government is also to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This would prevent small firms from losing retentions to insolvency or non-payment.
The measures build upon the 1998 Late Payment of Commercial Debt Act and will be the toughest in the G7, the government says.
CIOB reaction
David Barnes, head of policy and public affairs at the Chartered Institute of Building (CIOB), said the changes are welcome, but will require clarity. “The government’s commitment to tackling late payments and improving cashflow for small businesses across the UK, particularly within the construction sector, where these issues are rife, is most welcome by CIOB,” he said.
“While the proposed ban on retention payments is encouraging, the industry will need clarity on how these changes will be implemented in practice. A clear, well-structured transition plan will be essential to ensure existing contractual arrangements can adapt effectively.”
