Lord attempts to save SMEs with 30-day payment limit

Lord Mendelsohn is introducing a Private Members Bill to the House of Lords in an effort to tackle late payments and to strengthen the powers of the Small Business Commissioner

The Private Members Bill sets out a proposal to half the statutory 60-day limit for payment of all invoices to 30 days, backed up by giving the Small Business Commissioner powers to impose large fines on the worst, persistent offenders.

Lord Mendelsohn’s Bill will also ban prompt payment discounts, where purchasers demand discounts for prompt payment of invoices, charges for onboarding and staying on supplier lists.

Mendelsohn said: ‘Late payment is crippling small businesses while the UK economy is crying out for investment. By failing to tackle late payment we are starving our small businesses of the capacity to act.

‘The recent huge escalation in outstanding payments shows that decades of promoting ‘culture change’ has only made things worse. This Bill will tackle the issue once and for all with a package of measures that is operable, impactful and measurable.’

For some SMEs this is too little too late as almost a quarter of insolvencies (23%) are caused by late payment issues. Even for those companies that manage to absorb late payment, the loss of income can stop small businesses from investing and growing, and can also damage productivity.

The Association of Accounting Technicians (AAT) has fought a long campaign to tackle this problem arguing for three major changes.

They believe the first is to make the Prompt Payment Code (PPC) compulsory for companies with more than 250 staff - currently PPC operates under a signatory basis, and once approved, companies can use the PPC logo on documentation to show their business is serious about good payment practice.

Organisations that support PPC are HSBC, RBS, BP, Asda and John Lewis Partnership.

AAT also suggests that payment terms should be halved from 60 to 30 days, and that a penalty regime for persistent late payers should be introduced and enforced by the Small Business Commissioner.

Almost three quarters (73%) of MPs backed the three AAT recommendations, according to YouGov polling published by AAT.

Phil Hall, AAT head of public affairs & public policy, said: ‘There is no reason why any business should be paying its suppliers in more than 30 days and the Small Business Commissioner must have powers to impose fines on persistent late payers.  

‘AAT welcomes the measures being proposed by Lord Mendelsohn and hopes other politicians, from all parties, back this important Private Members Bill.’

Late payment delays double in a year

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