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Businesses could face fines for late payment


The Government is consulting on plans to strengthen the powers of the Small Business Commissioner (SBC) to aid businesses with fewer than 50 staff in the recovery of late payments from larger businesses. Among other things, it proposes that the SBC should be able to impose payment awards and fines.


What is the SBC?

The SBC is an independent public body set up under the Enterprise Act 2016 to tackle late payment and unfavourable payment practices in the UK's private sector. The office aims to empower small businesses to resolve disputes around late and unfair payment practices, provides advice on how to take action if a payment is overdue, and investigates complaints about payment issues. A small business is defined as any business with fewer than 50 staff (there is no turnover threshold).  The SBC does not charge small businesses for any of its services, including the investigation of complaints.


Why does the SBC need stronger powers?

According to the consultation, small businesses in the UK are owed circa £23.4 billion in late invoices which is affecting their cash-flow and even threatening their survival, particularly given the extra strains imposed by the COVID-19 pandemic. With its current powers the SBC lacks the authority to impose any sanctions on businesses which operate poor payment practices and, other than "naming and shaming" in its reports, the SBC has no way to encourage the engagement of businesses that are the subject of complaints.


The relative weakness of the SBC's current powers was highlighted in 2019 when it investigated a complaint against Holland & Barrett for taking 67 days to pay a £15,000 invoice which was submitted on 30 day payment terms. The company refused to engage with the SBC on several occasions during the SBC's investigation of the late payment.  It did eventually pay the invoice in full, but only after the SBC published a report accusing the company of operating a "purposeful culture of poor payment practices" which was picked up by national media.

What are the proposed new powers?

The Government is proposing to grant the SBC stronger powers aimed at incentivising cooperation from larger business and enabling it to take enforcement action against them if they fail to do so.


Broadly, the proposed powers will allow the SBC to:

  • compel the disclosure of information in connection with the investigation of a complaint;
  • issue an information notice, apply to the Court for an order enforcing that notice, and issue a civil penalty if the recipient of a notice does not comply;
  • issue a binding monetary award or payment plan where payment has been unfairly or unreasonably delayed or withheld by the respondent; and
  • impose a fine where the respondent fails to pay an award or adhere to a payment plan (and if a business fails to pay the fine, the SBC will have power to recover it as a debt and claim the costs of its investigation).
Will the new powers help the SBS with its objectives?

The proposed new powers, particularly the threat of payment awards and fines for non-compliance, are likely to act as an incentive for businesses being investigated to take the intervention of the SBC much more seriously. However, if it is to conduct investigations to a standard which could justify the imposition of fines and the exercise of other new enforcement powers, the SBC will need to be adequately resourced both in terms of budget and staff. According to its most recent annual accounts, the SBC's budget for the financial year ending March 2019 was roughly £750,000 and the organisation reported fewer than ten staff. As yet, it is not clear whether and how the Government will increase the resources available to the SBC to enable it to effectively exercise the proposed powers.

Should larger businesses be concerned?

A persistent problem with late payment initiatives of this type is that where the supplier is quite dependent on the customer's business and wishes to preserve the relationship, it will be understandably reluctant to complain to the SBC.  On the face of it, this might suggest that larger businesses have little to fear from these proposals.  However, the number of complaints being made to the SBC appears to be on the rise and, where the relationship between a small business and its customer has broken down over the late payment (or some other issue), the small business would likely have little to lose (and potentially much to gain) from pursuing a formal complaint to the SBC.  This is likely to be cheaper and easier than taking court action to recover the debt.


The proposals should also be seen against a background of various other government initiatives designed to combat late payment, such as the introduction of reporting obligations on larger UK companies and LLPs and threats to prevent persistent late payers from winning government contracts – see this briefing.

What happens next?

The consultation will close on 24 December 2020.  As the Government appears keen to signal that it is taking action to help small businesses, we would expect the proposals to go ahead in some form.  We would also expect the Government to treat the measures as a legislative priority, subject of course to more immediately pressing matters such as COVID-19 or Brexit. 

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