Small Business Commissioner proposes late payment warning system

08 Feb 2019

In the latest attempt to stem the flow of late payments being made by large companies, the Small Business Commissioner, Paul Uppal, is recommending the introduction of a traffic light warning system, thereby allowing suppliers to avoid repeat offenders if they choose to do so.

Since 2017, large companies have been required to report their payment practices on a twice-yearly basis. This data will feed into the proposed traffic light system, with habitual late payers (and those that have failed to comply with their reporting requirements) being given a ‘red light’.

This will be welcome news to SMEs, given that the Federation of Small Businesses estimates that large companies not settling their bills on time causes around 50,000 businesses to fail every year. However, it is clear that this scheme alone is unlikely to result in a meaningful change to the current late-payment culture.

Recent research suggests that 65% of large firms still take more than 30 days to settle invoices and 21% more than 50 days; this despite the Prompt Payment Code being introduced more than a decade ago which committed signatories to pay invoices within 60 days.

The Prompt Payment Code has often been criticised for its ‘lack of teeth’. This was further highlighted by the collapse of Carillion - itself a signatory to the Prompt Payment Code) in 2018.

A joint inquiry by two parliamentary select committees identified Carillion as a “notoriously late payer” which often waited 120 days before paying its small suppliers. At the time of its collapse, Carillion owed some £2bn to suppliers, sub-contractors and other short-term creditors. The fall-out has been significant; a survey by the Building Engineering Services Association and Electrical Contractors Association showed that, on average, small building, electrical and engineering firms were owed £141,000 by Carillion (and this does not, of course, take into account lost future business). Furthermore, Carillion’s collapse triggered a 20% spike in the number of UK building firms becoming insolvent during the first quarter of 2018.

Last month the joint inquiry recommended reducing the Prompt Payment Code to 30 days, from the current 60. However, as Carillion shows, the Code is too often ignored, to the detriment of small businesses.

It seems, therefore, that until the office of the Small Business Commissioner is given the power to impose meaningful sanctions on persistent offenders, the late-payment culture is unlikely to change.

Further reading

Supporting employees through the next lockdown

Managing your employees through uncertainty and equipping them to thrive, remain engaged and feel part of a team environment, must be a HR priority for 2021.
Read more Read

Remote working and home security

Blog, News & PR
With a large proportion of the workforce now working from home, security arrangements for home workers need to be addressed - Robert Ganpatsingh explains
Read more Read

Tenants take note: dilapidations damages to be subject to VAT

Blog, Legal Updates
Property expert Cheraine Williams explains why dilapidations could be about to get more expensive
Read more Read

Covid business interruption insurance payments due to small and medium companies

Blog, Legal Updates
Partner Jonathan Compton looks at the Supreme Court’s decision on business interruption insurance
Read more Read
  • Brighton Office

    1 Jubilee Street


    East Sussex

    BN1 1GE

  • Gatwick Office

    Griffin House

    135 High Street


    West Sussex

    RH10 1DQ

  • Guildford Office

    Wonersh House

    The Guildway

    Old Portsmouth Road



    GU3 1LR

  • Horsham Office

    Ridgeland House

    15 Carfax


    West Sussex

    RH12 1DY

  • London Office

    6 New Street Square

    New Fetter Lane


    EC4A 3BF

  • Get in touch