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Late payment reform Ideas for the way forward

Late payments put thousands of small firms out of business each year in the UK. It’s an issue that IoD members have had to face time and time again.

Having long campaigned on the issue, we welcomed the news that the Prompt Payment Code would be strengthened and reformed. This voluntary code sets standards for large organisations’ payment practices, and the Business Department has indicated that it sees this as a key lever to improve practices across companies and organisations of all sizes.

Earlier this month, we submitted our views to Government on how best to strengthen this Code. We highlighted the need for an effective enforcement mechanism, and pressed for a transparent and published process for dealing with Code suspensions, removals and reinstatements.

We also called for a traffic light system to be put in place to make it easier for business leaders to identify companies with poor payment records. While this would certainly be helpful to suppliers, it would also help motivate large firms to take the issue more seriously, especially if the simpler presentation of reporting resulted in increased negative profile of companies with poor payment practices.

However, we also made clear that the major issue we regularly hear from IoD members around late payments relates to culture and the leverage big businesses have over smaller suppliers – one reason why firms are often reluctant to file complaints to the Small Business Commissioner. Many IoD members running small businesses have told us that they would be reluctant to report their client that pays late to an authority or mediator simply because they would be cautious not to damage the relationship and risk losing future business. As such, we argued that the administrators of the Code should be able to approach signatories on the basis of an anonymous complaint by a third party, for example a trade body on behalf of their member, to discuss their payment practices.

Taken together, we believe these measures could help create a fairer business environment. We hope to see the Government respond in the coming months and bring forward reforms to create a more responsible payment culture.

While this consultation is now closed, the Government is also looking for feedback on proposals to strengthen the Small Business Commissioner’s powers to deal with late payments. A link to the consultation is here, and we’d encourage IoD members to submit their views.

Carum Basra, Corporate Governance Senior Policy Advisor

Carum joined the IoD in August 2019 to work on Corporate Governance policy.  Prior to joining the IoD, Carum served as a Senior Associate at a leading strategic communications consultancy where he advised clients across a broad range of public affairs issues.

Carum holds a BA in Politics from the University of London and studied International Corporate Governance at Queens University, Belfast, graduating with Distinction in 2019.

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