Businesses may face late payment fines

A late payment levy is among options being investigated by the Business Department as it considers taking a tougher stance on the £30.2bn owed to small businesses in outstanding debts. The plan would see companies which pay bills late given financial penalties through a scheme modelled on a system used in Sweden.

The Government wants to tackle an entrenched and “unfair” culture of late payment among some sectors and businesses – with large companies typically the worst offenders – and is considering tougher measures after the failure of previous initiatives, reports The Telegraph.

Michael Fallon, the Business Minister, said he was “going to war” on the issue last year after hearing complaints from small businesses over the devastating impact late payment of bills can have.

However, a threat to “name and shame” FTSE 350 companies which refused to sign up to the prompt payment code (PPC), a voluntary commitment to pay suppliers within agreed terms, had little impact. Less than half of Britain’s biggest listed businesses have signed the PPC. The Government has admitted that legislation which allows suppliers to charge interest on late payments has failed because they are usually fearful of losing deals.

Business Department officials are now analysing various options, including a late payment levy, in an effort to encourage firms to pay within 30 days. Suppliers to many large companies have contractual terms of as long as 180 days – and companies complain that even these are not adhered to, leaving some waiting as long as six months for payment.

Other ideas include “sector specific” initiatives in industries such as construction where late payment is particularly pronounced.

Proposals to tackle poor payment practices are expected to form part of a package of measures to support small businesses and promote “responsible capitalism”.

A Business Department spokesman said: “Vince Cable is concerned about companies struggling because others aren’t settling bills on time. This has an unfair effect on them growing their businesses. He’s looking at what can be done by Government to help.”

Philip King, chief executive of the Institute of Credit Management, which runs the PPC, said: “Late payment remains a serious issue, so [Mr Cable] is right to be exploring all possible options. He’s also right to link it to responsible capitalism. Treating suppliers fairly deserves more focus.”

However, he warned there would be “devil in the detail as to how guilty parties are accurately identified and how [a proposed levy would be implemented”. He added that any rule that relied on suppliers taking action would be unlikely to succeed.

The Forum of Private Business said it was “encouraging” to see that the Government was “prepared to take action”, adding it was “essential we break the cycle” of late payment.