Currently £23.4bn of late invoices are owed to small firms across Britain, impacting on businesses’ cash flow and threatening their survival during the Covid-19 pandemic.

The proposals would see the SBC having the power to order companies to pay their suppliers, either as a lump sum or agreed payment plan, when a complaint against them for late payment has been investigated and upheld.

The award would seek to put the small business into the position it would have been in had it been paid on time and in full, and companies which failed to comply with this could face further penalties, including fines.

The SBC would be able to compel companies to share information during an investigation, and would have the power to launch investigations into suspected bad payment practice, without the need to have first received a complaint from a small business.

The Commissioner would be able to compel the disclosure of information in connection with the investigation or a complaint, to ensure businesses co-operate more readily.  Where there are adverse findings from a complaint, the Commissioner will be able to claim investigation costs from the company concerned.

Under the plans, the scope for complaints to the SBC would be expanded, to allow the Commissioner to investigate complaints about other businesses relating to payment matters in connection with the supply of goods and services.

In addition, the SBC would have a new inquiry function, giving the Commissioner the right to review and report on wider business practices outside of payment matters, on instruction of the BEIS Secretary of State. This could be a practices unrelated to payment matters specifically impacting small businesses such as supply problems, or broader issues like barriers to the adoption of payment technology.

Paul Scully, small business minister, said: ‘Late payments are a terrible burden for small businesses, not only disrupting their cash flow but posing a threat to their survival in many cases.

‘We are committed to tackling this problem, supporting small businesses at this critical time for the British economy by helping them to secure payment on time.’

According to the Federation of Small Businesses (FSB), around 50,000 small companies close each year due to late payments, while 62% have experienced late payment at some point or other and  10% report a lengthening of payment times as a result of the coronavirus pandemic, with some seeing payments frozen altogether.

Mike Cherry, FSB national chairman, said: ‘The proposed new powers would give the SBC some teeth to investigate bad practice more easily and punish it more severely, and it is very welcome to see these plans being put forward for consultation.’

Tim Foster, a risk advisory partner at accountancy and business advisory firm BDO,  said: 'We welcome the principle of giving greater powers to the Small Business Commissioner to enforce prompt payments to small business to support those who are struggling as a result of the pandemic.

'While our recent research suggests there hasn’t been a significant deterioration to date in the average payment performance of "large" companies due to COVID-19, the problem could become more acute when government financial support packages begin to wind down.

‘It is therefore incumbent upon all larger businesses to improve their payment practices and working capital management to prevent a culture of late payments being passed along the supply chain.'

The consultation closes on 24 December.

Useful links:

Increasing the Scope and Powers of the Small Business Commissioner