Bupa falls foul of SME late payment rules

The government’s small business commissioner has sounded a warning about large companies’ failure to pay adequate compensation to small business in cases of late payment of invoices, following an investigation into a complaint brought against healthcare giant Bupa

The complaint was brought by Blacklight Advisory Services Ltd regarding the late payment of consultancy fees owed by Bupa Insurance Services Ltd.

The small business submitted an invoice for £29,403.76 on 2 November 2018 based on 45-day end of month payment terms, but was not paid on the due date of 15 January 2019 despite chasing on numerous occasions.

A report on the case said Bupa Insurance Services Ltd responded positively to the commissioner’s investigation, immediately approving and releasing the overdue payment which was made 15 days outside of the contracted terms. However, the payment was made after 75 days of receipt of invoice.

The reason provided for the delay was an unspecified error in the invoice approval process and staffing inefficiencies, amongst blaming the complainant for not following the recommended invoice submission process.

However, the report noted that Blacklight had submitted its invoice based on procedural instructions provided by the relevant directorate whilst being reassured on several occasions that the invoice had been received and authorised.

Bupa Insurance Services recognised that it did not meet the agreed contractual payment terms, and acknowledged the late payment by offering a claim for late payment interest at 2% above the Bank of England base rate for the value of the invoice. 

The small business commissioner took issue with this decision, saying the compensation in such cases should be ‘substantial’.

The report pointed out that the Late Payment of Commercial Debts (Interest) Act 1998 sets a statutory value of 8% above the Bank of England Base Rate for interest that is chargeable on late paid debts.

In addition, the Act allows compensation to be charged at statutory defined levels dependent on the value of the debt. The Act also allows the remedy for late paid debts to be varied or ousted from the statutory defined values as an agreed contractual remedy.

It said that determining what is fair and reasonable in ousting the levels of interest may include the benefits of commercial certainty. Additionally, the bargaining position of both parties including whether the term was imposed on one party to the detriment of the other, or if the supplier received an inducement to agree to the term should be considered.

The commissioner did not consider the variation to 6% below the value defined in the legislation a considerable remedy or deterrent for late payment. Bupa Insurance Services stated that it offers preferential 30-day payment terms to small businesses, but the investigation found this policy was implemented after commencement of the complainant’s contract. Blacklight requested a variation in payment terms to 30 days, but this was rejected and it was held to the original agreement.

Paul Uppal, small business commissioner, said: ‘I am witnessing variations from the statutory defined value of late payment more frequently in contractual agreements.

‘It seems that small businesses are being pressured into accepting these terms if they wish to supply large businesses as part of standard framework agreements.

‘A substantial remedy for late payment should be substantial. It should adequately compensate the small business for impacted cash flow, and any additional resources required to chase outstanding invoices.

‘The remedy should also act as an incentive to ensure payment is made on time. I do not consider a contractually agreed variation of late payment charges at 2% above the Bank of England Base rate from a global company sufficient.’

The report made specific recommendations for Bupa, which include setting out the agreed remedy in standard framework contracts; agreeing the value of the remedy after considering the bargaining position of the small business, effect of late payment on the small business, commercial certainty and benefits of being a supplier;  increasing transparency by promoting its preferential payment terms to its small business supply chain; and offering small businesses 30-day payment terms as standard.

A Bupa spokesman said: ‘We take our commitment to prompt payment very seriously. Unfortunately, in this instance, an invoice error led to delays in processing the invoice and as a result the payment was late. Since this happened, we have introduced a flexible payment policy that now allows us to offer shorter payment terms of 30 days to small suppliers on request.’

Small business commissioner investigation report into Bupa Insurance Services

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