Late payment crackdown laws introduced to House of Lords in ‘step forward’

News20.05.262.00 PM by Alex Daniel

Rules designed to crack down on late payments to contractors have taken a step closer to becoming law, two months after ministers unveiled the measures.

The rules were introduced to the House of Lords on Tuesday (picture: Alamy)

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Late payment crackdown laws introduced to House of Lords in ‘step forward’ #UKhousing

Under the new rules, which were introduced to the House of Lords on Tuesday, the Small Business Commissioner will get new powers to investigate late payments, adjudicate disputes and fine persistently late payers.

All large firms will face a new 60-day cap on payment terms when paying suppliers, while late payments will have interest applied to them set at 8% above the Bank of England’s base rate.

On average 38 businesses close down per day because of late payments, according to official data, while late payments cost the economy £11bn every year.

Emma Jones, the small business commissioner, said it was “another big step forward in speeding up payment terms and times for small firms”.

Firms that persistently pay late could face fines worth tens of millions of pounds, while the boards of those firms will need to publish explanations for poor payment performance.

Under the new measures, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest.

The new measures strengthen current legislation on late payments, which was first laid out in the Late Payment of Commercial Debts (Interest) Act 1998.

However, some in the building industry said it could weaken investment.

Paul Rickard, chief executive of Pocket Living, said that so-called retention payments are “one of the most effective tools available for holding contractors to the quality they promise”.

“For SME developers, that protection is vital. Large house builders can lean on the scale of their pipelines to keep contractors and supply chains in line. Smaller developers cannot.

“Retention is often the only meaningful lever we have to ensure works are finished properly and defects put right. A ban would strip that lever away at the worst possible moment, with SMEs already stretched in a difficult market.”

Sam Bensted, assistant director (planning and development) at Real Estate:UK, said: “In proposing a ban on the use of retention payments within the construction sector, the government fails to understand why they currently exist and are necessary.

“These are not late payments – they are an important tool used by construction clients to ensure that projects are delivered by construction companies to appropriate safety and quality standards.

“A complete ban on their use not only misunderstands their intention, but also the protection they provide to smaller construction sector clients, including the very SMEs the government wants to support, as well as to the ultimate users of buildings.”