"It’s promising to see politicians recognising the loophole exists but how it’s addressed will be the real test. "
If that figure isn’t shocking enough, the scale of the issue is highlighted by the direction of travel – in 2017 the figure was £2.6bn.
In April of 2017 the government introduced new ‘Duty to Report’ legislation with the explicit aim to tackle late payments. Clearly, the rise of over £4billion shows it’s not working. So, what is the regulation and how does it aim to support your clients?
Driving transparency
The ‘Duty to Report’ legislation was introduced to boost transparency by making it mandatory for large businesses to publish details of how long it takes them to pay their suppliers. The idea is to nudge companies to be quicker for fear of being publicly named and shamed.
Government focus on tackling late payments was welcomed by business and trade organisations, as a vital move to boost the health of the 5.5 million SMEs in the UK, and of the wider economy. The question is, why isn’t the legislation working?
The loophole
There is a loophole in the ‘Duty to Report’ legislation which allows large businesses to ignore the regulation without being penalised. Failing to comply is a criminal offence for any business that meets two of the following criteria:
• Annual turnover equal to or in excess of £36 million
• A Balance sheet equal to or in excess of £18 million
• A minimum of 250 staff
As a result, any services that are contracted and paid-for by group subsidiaries outside of the threshold currently don’t have to comply. This has rightly caused uproar amongst MPs and small business representatives alike, with Rachel Reeves MP, Chair of the Commons Business, Energy and Industrial Strategy Committee saying that the loophole “undermines efforts to tackle late payments and protect small businesses.”
Similarly, Small Business Commissioner Paul Uppal admitted that it’s “disappointing” the legislation hasn’t been as effective as many anticipated.
The right support
It’s promising to see politicians recognising the loophole exists but how it’s addressed will be the real test. One solution being considered by Government is to give the Small Business Commissioner power to fine large enterprises that repeatedly flaunt payment agreements. However, the success of it will depend on the level of fines – if it equates to a financial slap on the wrist for the biggest businesses, it’s hard to see it having a big impact.
If the Government is truly committed to removing the administrative burden of late payments that puts so many SMEs out of business, it needs to broaden the ‘Duty to Report’ legislation to remove the loophole and force large businesses and their subsidiaries to report their payment habits. Only then will an environment of complete transparency be created, which in turn may finally make a serious dent into the ever-present burden of late payments.
Until this happens there are ways that you can support your clients in the fight back against late payments, including by connecting them with a flexible funding partner to bridge the gap in their cashflow.
SMEs are the growth engine for the UK economy and although brokers are providing vital support, many are being held back by this persistent issue. Until the legislation is made fit for purpose, your clients will rightly rely on your expertise to overcome late payments and meet their growth objectives.
