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30 day deadline - personal responsibility for late payment of suppliers

  • United Kingdom
  • Commercial agreements
  • Licensing
  • Outsourcing and offshoring
  • Technology

26-01-2021

The Government has announced reforms to late payment guidance and legislation which carry a sting in the tail for CEOs and FDs.

According to a BEIS press release, companies that have signed up to the Prompt Payment Code will now be obliged to pay their small business suppliers (that is, those with less than 50 employees) within 30 days, whereas the current Code deadline is 60. More alarming is the proposal that CEOs or FDs of those businesses who have signed up to the Code will be required to take personal responsibility by signing the Code.

At a time when many businesses are trying to manage their liquidity very tightly, the changes which are part of the direction of travel of Government policy on tackling late payment, also include new powers for the Small Business Commissioner to be able to issue legally binding payment orders, launch investigations and levy fines on late payers: these new powers are still to be published in draft form but appear to be in the pipeline.

Whereas the reduction of the 60 day limit for Code signatories is due to come into force in July, the changes requiring the CEO or FD to personally sign the Code come into effect immediately.

The Interim Small Business Commissioner is clear that poor payment practices is causing real hardship, particularly because of the pandemic and ties it squarely into ethical business practices. In addition one aspect of the pandemic is that it has highlighted the importance of healthy supply chains.

For those businesses who are signatories to the Code, they can be struck off for poor practice, with this being publicly announced by the Small Business Commissioner’s office. So far, 55 businesses have been suspended and 26 reinstated once they had demonstrated substantial improvement to their payment practices.

With these changes Code signatories should not just review their payment practices but check their contractual terms with small businesses to ensure compliance with the Code. Even for those businesses who have not signed up, payment practices is firmly within the Government’s sights and the reforms recently announced have the potential to impact us all.

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