The industry’s trade associations are anticipating further details of new government plans to tackle late payment, including a future consultation on allowing bodies such as the FMB or NSCC to act on behalf of their members to challenge unfair payment terms.
The plan was raised by new business secretary Sajid Javid at a speech in Bristol earlier this week, when he also trailed the creation of a new Small Business Conciliation Service (SBCS) to help resolve disputes between small businesses and clients.
The SBCS is apparently based on a successful system in Australia. The measure will form a part of a new Enterprise Bill, to be included in the Queen’s Speech next Wednesday.
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Brian Berry, chief executive of the FMB, said: “Javid has also touted the idea of widening the powers for representative bodies to act on behalf of their members to challenge grossly unfair payment terms.
“We eagerly await further details on this as it is often difficult for small firms to highlight poor payment terms directly without biting off the hand that feeds. This is partly why the problem has raged on for so many years.”
He added: “At the end of last year the FMB and NSCC published research which showed that more than 90% of small construction firms agree contractual payment terms with their clients of 45 days or fewer, but only 57% of members actually receive payment within those terms.”
The SBCS has also been generally welcomed, but lawyer Ben Gardner of Pinsent Masons, writing for the firm’s website Out-Law.com, said that it could have limited effect.
“However, the success of the SBCS is likely to be dependent on SMEs referring late payment issues and disputes to it in the first place,” he said. “As is the case with existing legislation, this is something SMEs may be unwilling to do for fear of jeopardising their business relationships.”
But Gardner also highlighted a measure that is already on the statute books – and due to take effect next April – that could improve the payment climate for SMEs.
He wrote: “From next April, large businesses will be required to publish information about their payment practices twice a year. The final reporting requirements will be established through new regulations, which are due to be published shortly. However, it is expected that large businesses will be required to report on their standard payment terms; on the average time taken to pay; on the proportion of invoices paid in 30 days or less, 60 days or less and beyond 60 days; and any financial incentives required of suppliers before they can join or remain on supplier lists.”
Along with the new reporting requirements, there will also be measures to beef up the pan-industry Prompt Payment Code and enforce the removal of those found to have breached its standards.
The Prompt Payment Code now promotes a 30-day payment term as the norm, with a maximum permitted payment term of 60 days.
However, the full working details of the industry-specific Construction Supply Chain Payment Charter – launched over a year ago by the Construction Leadership Council – are still awaited.
