Late payment is a constant frustration for business owners, many of whom rely on getting paid in a timely fashion to avoid serious cash flow issues. According to recent research by insurer Simply Business, UK small business owners were owed a staggering £32.1 billion in late payments.
The Prompt Payment and Cash Flow Review is about identifying measures the government can take to improve payment practices. New legislation will be welcomed by SME owners, but it’s still important to have robust credit control procedures and chase overdue debtors rigorously, particularly as new legislation could take a long time to come into effect. Even when it does, it’s unlikely to do away with the need for robust credit control and efficient debt collection.
Many SMEs lack the time and resources to chase debtors effectively. Therefore, getting the support of a professional debt collection agency (DCA) will remain a wise choice for those who want to achieve positive results as quickly as possible.
A good DCA will use their experience and expertise to chase debts proactively and persistently. At the same time, they’ll follow the letter of the law and act with integrity, ensuring that your reputation and valuable customer relationships aren’t compromised.
What are the Government’s plans?
The Payment and Cash Flow Review will take a broad approach and set out the issues from the point of view of small businesses. Potential new measures include:
- Legislation to encourage better reporting, including new metrics to enable businesses to see the value of invoices and identify serial late payers.
- A requirement for the construction sector to report on retention payments.
- More powers for the Small Business Commissioner, enabling the commissioner to investigate and publish reports based on anonymous information and intelligence.
- Advice to small businesses on how to negotiate better payment terms.
- Encouraging businesses to use digital payment technologies and embed prompt payments as part of their Environmental, Social and Governance (ESG) programmes.
What’s the current situation?
Many small business owners may be unaware that there’s already legislation to support them in chasing overdue debts. The Late Payment of Commercial Debts (Interest) Act 1998 gives you the statutory right to claim interest on an overdue debt, as well as compensation for costs you've incurred in debt collection.
The interest rate you can charge is fixed at 8% above the Bank of England base rate. As for your debt collection costs, the amount you can charge ranges from £40 for a debt of up to £999.99 to £100 for a debt of over £10,000.
In addition to this legislation, there’s the Prompt Payment Code (PPC), which is a voluntary scheme in which businesses commit to paying suppliers on time.
Time will tell whether new legislation dovetails with these existing measures or replaces them altogether. The Payment and Cash Flow Review ‘will examine the effect of existing government policy levers and make recommendations on the future of these policies, including how they can work better together and where they can be improved’.
What’s the timeline?
Following extensive research and stakeholder engagement, the Government intends to deliver a conclusions document later this year. As well as summarising their findings and next steps, it will also form the Government response to the consultation on the reporting regulations and set out the findings of the statutory review on the performance of the Small Business Commissioner.
The support you need right now
At Redwood, we specialise in helping all kinds of businesses get paid what they’re owed. We have a strong track record in working with SMEs, which make up a significant portion of our client base. We’ll chase your overdue debts with diligence and tenacity, while always working strictly within fair practice guidelines laid down by the Financial Conduct Authority (FCA). We also understand the importance of using tact and sensitivity in our approach to debt collection. With our reliable, professional support, your business can Grow Stronger.
