A 30-day limit for all invoice payments and large fines for those who repeatedly fail to pay up on time is what a new Private Member’s Bill is proposing.

Labour peer Lord Mendelsohn has introduced the Bill to the House of Lords in a bid to address late payments and strengthen the powers of the Small Business Commissioner.

Lord Mendelsohn said: “Late payment is crippling small businesses while the UK economy is crying out for investment. By failing to tackle late payment we are starving our small businesses of the capacity to act. The recent huge escalation in outstanding payments shows that decades of promoting ‘culture change’ has only made things worse. This Bill will tackle the issue once and for all with a package of measures that is operable, impactful and measurable.”

FSB (Federation of Small Businesses) research suggests that 83% of small businesses have to deal with late payments and that this causes cashflow problems for one-third of them.

While research from accounting software company Intuit QuickBooks found that collectively the issue of late payment costs small businesses in Britain around £2.5 billion a year.

For larger organisations late payment is perhaps an accepted irritation that can be absorbed, but for smaller businesses who are more reliant on good cashflow, it can have a devastating effect.

The Association of Accounting Technicians (AAT) has welcomed Lord Mendelsohn’s Private Member’s Bill. They firmly believe that there is no reason why any business should take more than 30 days to pay its suppliers.

The AAT is critical of the government for placing too much emphasis on voluntary measures and has itself tried to tackle the issue of late payment by recommending:

  • The Prompt Payment Code be made compulsory for companies with more than 250 staff
  • Payment terms be halved from a maximum of 60 days to a maximum of 30 days
  • That a clear, simple financial penalty regime for persistent late payers should be introduced and enforced by the Small Business Commissioner

On reading the comments from Lord Mendelsohn and the AAT, it is clear to me that something has to be done to tackle late payments.

My challenge back to them would be:

  • Why should the Prompt Payment Code only be made compulsory for companies with more than 250 staff? Non-payment is non-payment. The code should apply to everyone in business.
  • Likewise, payment terms should be 30 days for every business and shouldn’t differentiate between different sized businesses.
  • Persistent late payers should be forced to pay a substantial statutory penalty. I would be so bold as to suggest £1500 for debts up to £10,000 and £5000 for debts over £10,000 which are not paid in 30 days.

In the 18th and early 19th centuries 10,000 people a year were imprisoned for debt, in fact half of England’s prison population was as a result of unpaid debts.

I’m not suggesting we bring back debtors’ prisons(!), but if by bringing into legislation heavier sanctions and more stringent expectations, we could eradicate the late payment culture which burdens so many businesses, I think that would be a positive move.

For advice on any debt matter, email or phone 01782 205000.