New proposals to give business groups further powers to challenge unfair payment terms and practices on behalf of their members have been unveiled today (3 February 2015).
The government is bringing in tough new laws and bulking up existing codes of practice to tackle the issues of late payment and other unfair payment practices. The measures include:
- consulting on ways to tackle poor payment practices, such as by giving representative bodies greater powers to challenge grossly unfair payment terms and practices
- leading by example on public sector procurement
- new laws to increase transparency on the payment practices of large and listed companies and help change corporate payment culture
- toughening up the Prompt Payment Code
- giving the Groceries Code Adjudicator the power to fine supermarkets for breaching the Groceries Supply Code of Practice
Representative bodies such as the Federation of Small Businesses (FSB) have played an important role in raising the profile of payment issues.
Giving these organisations further powers to challenge unfair payment terms, on behalf of their members, could give small businesses more confidence to speak out against the poor practices of their larger customers.
Business Secretary Vince Cable said:
Large companies using their economic might to impose unreasonable terms on their suppliers causes real problems for small businesses. It is a significant issue and there is agreement that we need to keep the pressure up to bring about real change.
This is about making the UK a fairer and more trusted place to do business.
Business Minister Matthew Hancock said:
Small businesses are the economic backbone of the UK, but some large companies are squeezing the life out of them by imposing unreasonable payment terms. This behaviour must stop, once and for all.
I want to pay tribute to the efforts of the FSB in highlighting these payment practices and for working with us to start stamping them out.
Greater transparency is key and we are setting an example in government, by committing to paying 80% of our invoices within 5 days, with a maximum of 30-day terms on all public sector contracts.
Today’s consultation on widening the powers available to representative bodies to challenge grossly unfair terms and practices in relation to late payment covers:
- who might be covered by a representative claim (individual businesses or groups of businesses)
- which organisations can bring a claim
- options for dispute resolution
- the resources available to bring a case
- whether to further refine the definition of ‘grossly unfair’ payment practices
The announcement follows a Downing Street summit on payment practices, co-chaired by Matthew Hancock and Sir Win Bischoff, Chairman of the Financial Reporting Council. Attendees also included representatives from FTSE 350 and international companies, as well as suppliers and small businesses.
Notes to editors:
The government is seeking views on whether to give representative bodies additional powers to challenge grossly unfair terms and practices. The discussion paper will be published on GOV.UK and the consultation will close on 9 March 2015.
Using public procurement to lead by example
Central government is leading by example: we have committed to pay 80% of central government invoices within 5 working days. We are also working on further reforms to increase prompt payment further down government supply chains.
Increasing transparency around large companies’ payment performance
Through the Small Business, Enterprise and Employment Bill, currently before Parliament, the government is introducing a requirement on the UK’s large and listed companies to report on their payment practice and performance. Increased transparency, through a tough and transparent new reporting requirement, will help take significant steps to addressing the current imbalance in economic power between small and large contracting parties.
Tackling other unfair practices
In the Duty to Report consultation, which closed on 2 February 2015, the government sought views on other poor payment practices, such as paying to be on a supplier list and using dispute processes to delay payment. The consultation findings will be used to determine the need for and scale of any further action.
Strengthening the Prompt Payment Code
The Department for Business, Innovation and Skills is working with the Chartered Institute of Credit Management to give the Prompt Payment Code more teeth: including a possible maximum payment term, and enhanced enforcement procedures. This is an essential element of the work to build a responsible payment culture. The Prompt Payment Advisory Board will meet next week to discuss the possible measures.
The Groceries Code Adjudicator
Measures that will grant the Groceries Code Adjudicator (CGA) the power to fine UK supermarkets that have breached the Groceries Code were recently laid in Parliament. The Code imposes on the supermarkets an over-arching principle of fair dealing with their direct suppliers; and includes, amongst other things, specific provisions governing terms of supply, timing of payments, marketing and promotional costs, and payments as a condition of being a supplier. The Adjudicator will be able to impose penalties on the large supermarkets of up to 1% of their annual UK turnover.