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03/02/2015
Government consults on late payment issue for SMEs
Subject: Selling and marketing/Late payment
Source: GOV.UK

The Department for Business, Innovation and Skills (BIS) has published a consultation document entitled Late Payment: challenging grossly unfair terms and practices.

BIS states that late payment remains a serious issue for businesses, especially small businesses. Evidence shows that small and medium businesses are owed a total of £39.4 billion, and small businesses are waiting for an average of £38,200 in overdue payments. Such delay has a damaging knock-on effect on small businesses’ ability to manage their finances and plan for growth, and pushes late payment down the supply chain.

The consultation seeks views on how to provide business representative bodies with additional powers to challenge grossly unfair contractual terms and practices as set out in the 2011 EU Late Payment Directive, and how to, if at all, better define “grossly unfair” in relation to late payments in UK law. The proposals in this paper cover the law applying in England, Wales and Northern Ireland. The Scottish Government will work with stakeholders to identify how this can be taken forward in Scotland.

The Late Payment of Commercial Debts (Interest) Act 1998 and subsequent regulations created a statutory framework in the UK for tackling late payment. The legislation provided for the right of a supplier too charge interest of 8% above the Bank of England Base Rate for any late payment, and to charge administration costs for chasing late payment based on a sliding scale.

The regulations stipulate a mandatory 30 day payment terms for transactions with public authorities. In the case of other buyers, there is a maximum 60 day payment term unless the parties agree longer terms and this is not grossly unfair to the supplier. Apart from the commercial issue of whether a small supplier is willing or able to challenge a larger customer, a problem with this legislation is precisely what is meant by ‘grossly unfair’ if the customer insists on contractual terms of payment of greater than 60 days.

The EU Late Payment Directive, as amended in 2011, gave powers to allow representative bodies to challenge all contractual terms or practices with regards to late payment considered ‘grossly unfair’ on behalf of any business.

The BIS consultation seeks views on how further to clarify the ‘grossly unfair’ concept and to enhance the powers of representative bodies to challenge late payment practices.

Responses to the consultation are required by 9 March 2015.

 

 

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