Business secretary Greg Clark has unveiled new measures to help contractors suffering financial problems resulting from late payments.
Earlier this year two of the government’s preferred contractors, Kier and Wates, were named on a list of the industry’s most notorious late payers.
Clark has vowed to strengthen the government’s Prompt Payment Code with “a new tough and transparent compliance regime”.
At present, the Prompt Payment Code says that invoices should be paid within 60 days unless there are “exceptional circumstances”.
But there are fears that there are few sanctions for breach the code. Failed contractor Carillion was frequently accused of withholding money from suppliers.
Small business commissioner Paul Uppal will also join the Prompt Payment Code’s compliance board to support its role in tackling late payments, the government has announced.
The government is also consulting on new proposals to consider the best way to ensure company boards put in place responsible payment practices throughout their supply chain, including whether all company boards should give one of their non-executive directors specific responsibilities for the company’s prompt payment performance.
Specialists Engineering Contractors’ Group chief executive Rudi Klein called the Prompt Payment Code a “waste of space” and argued attempts to reform it are likely to prove futile because there is “a deliberate policy on behalf of companies to pay less or not pay at all”.
Arguing that Clark’s measures do not go far enough, he added: “We are not talking about if somebody forgets to pay. We are talking about an embedded culture of not paying because of poor balance sheets.”
Klein suggested that all public sector projects should have mandated project bank accounts which are protected by a trust and argued for legislation which would ensure mandatory 30 day payments for all contracts.
He also claimed the government should back the Aldous Bill, which proposes a compulsory retentions deposit scheme to protect suppliers from insolvencies further up the chain.
Federation of Small Businesses national chairman Mike Cherry was more optimistic about Clark’s measures.
Cherry said: “Late payment is the biggest challenge affecting small businesses and it is good to see the government getting serious about this issue.
“The voluntary Prompt Payment Code is not working when it allows signatories like Carillion to pay on terms of over 120 days, so we want to see a new tough and transparent compliance regime being proposed.
“Involving the Small Business Commissioner Paul Uppal with the code is also right as that shows a more joined-up approach to this difficult issue.”
Research conducted by small business finance provider Liberis earlier this year revealed that small businesses are altogether still owed £14.9bn from goods and services they have provided.
The research, which polled over 400 small and medium-sized enterprises, found that 58% of small firms are currently owed up to £10,000 with 27% owed more than £20,000.
Clark’s new measures have been introduced more than six months after chancellor Phillip Hammond announced in his spring statement that the government would combat the “scourge” of late payments to small companies.
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