21 May 2015

In a move that will impact businesses both large and small, the Government has confirmed the continuation of plans to empower SMEs, mandate prompt payment of debts under public contracts, and force large companies to publicise their payment practices.

In a speech to businesses in Bristol on 19 May 2015, Sajid Javid MP, the incoming Secretary of State for Business Innovation and Skills (BIS), confirmed plans for various measures to compliment the aims of the new Enterprise Bill, which will feature in next week’s Queen’s Speech. Chief amongst these will be the introduction in April 2016 of the Payment Practice Regulations and establishment of a Small Business Conciliation Service to give small companies a cheap forum to pursue companies that pay late. For companies with public sector contracts, such measures will be in addition to changes to the Prompt Payment Code ensuring payment within 30 days all the way down the supply chain.

Whilst news of the early implementation of these Conservative manifesto commitments will be welcome to small businesses, for many larger companies these measures will create a pressing compliance burden which will need to be addressed without further delay. In particular, the Payment Practice Regulations look set to implement a new regime of performance reporting which existing company policies and practices may be insufficient to meet. Metrics on which large companies will be required to regularly report will include the average time taken to pay under all contracts; the proportion of invoices paid beyond agreed terms; the proportion of invoices paid between 30, 60 and 90 day intervals; and the aggregate amount of late payment interest owed and paid. The government is also considering requiring director sign-off for such reports and personal liability for inaccuracies.

The author, Lloyd Nail, is a solicitor in our Disputes and Litigation team.

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