Late Payment Laws Are Changing: What Businesses Need to Know

The Government is currently consulting on significant changes to the law regarding the late payment of business debts.

The potential changes may include powers to fine businesses which fail to pay their suppliers on time, measures to prohibit credit periods of more than 60 days and restrictions on customers’ ability to withhold payment

What Are The Key Proposals?

The proposals include the following:

• Prevention of payment periods of more than 60 days (reducing down to 45 days over a period of 5 years).
• The current statutory interest rate on late payments of 8% over base to be made mandatory with no scope for contracting out.
• 30-day deadline for disputing invoices and withholding payment.
• Binding arbitration scheme for payment disputes involving businesses with fewer than 50 employees.
• Powers to fine businesses with poor payment records.

Why Does This Matter?

For customers:

• The restrictions on the payment periods will mean that the effect of these may negatively impact cashflow, especially for customers who have habitually taken longer that 60 days to pay.
• The new 30-day time limit for raising payment disputes will mean that customers with a legitimate dispute will need to move swiftly to verify the accuracy of supplies received and the validity of associated invoices.
• The mandatory late payment interest rate of 8% over base could be a significant amount, particularly on larger invoices, and customers who have customarily contracted out of the statutory rate in their terms and conditions will no longer be able to do so.

For suppliers, on the face of things, the proposals would appear to be wholly beneficial and welcome, but many suppliers are also customers for the purchase of goods or services used in their own business. Therefore, many of the implications of the proposals on customers will also impact suppliers.

One of the major concerns which the proposals will seek to address is the fact that many larger customers with greater bargaining power often try to ease their own cashflow issues by paying suppliers selectively with larger more critical suppliers being paid in priority to smaller ones to the detriment of small businesses. For this reason, certain of the proposals will be overseen by the Small Business Commissioner which may be given new statutory powers to investigate and fine non-compliant businesses, and to administer the above arbitration scheme.

How Can We Help?

The Corporate and Commercial team at Wilson Browne Solicitors is ideally placed to advise on all aspects of supply or purchase agreements or general terms and conditions to ensure that they will be fully compliant with the new proposals when implemented. For a confidential and no obligation initial discussion about how we may be able to help, please contact the Corporate and Commercial team at 0800 088 6004.