Supply chain · 30 May 2017

New duty to report rules could see big firms shift the goalposts of payment terms

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Statistics drawn together by Business Advice showed a third of micro business owners had between £20,000 to £50,000 in unpaid invoices

Government efforts to tackle late payments through supply chain accountability could be exploited by large firms, after research revealed a significant lack of awareness within the small business community of new “duty to report” obligations.

In April 2017, the first stage of duty to report regulations was introduced by government to help small businesses access the estimated £266bn held up in late payments by larger clients.

New rules will eventually force big businesses to publish the average time taken to pay suppliers, in the hope public accountability will incentivise prompt payments within companies.

Currently, businesses can publish payment records on a voluntary basis, with bi-annual mandatory reports to be introduced in October 2017.

Failure to consistently report practices could result in criminal proceedings.

However, a survey from Crossflow Payments revealed an overwhelming 78 per cent of small business owners were unaware of new payment practice laws.

Of the founders who were aware, just 17 per cent believed payment reporting would have a positive impact on their business.

A lack of awareness and leverage among small suppliers could leave space for bigger clients to review existing contract terms and extend payment deadlines in their favour.

Commenting on the “vast majority” of small business owners sceptical of duty to report obligations, Tony Duggan, CEO of Crossflow Payments, warned new rules could “make a bad situation worse”.

“An unintended consequence of the rules is that large corporates are likely to respond by negotiating longer payment terms with suppliers to shift the goalposts and create the illusion that they are paying on time,” he said in a statement.

Duggan added that tough economic conditions would see large companies doing all they can to extend agreed payment deadlines, with small suppliers lacking the knowledge or influence to contest contract terms.

“Add to the mix difficult trading conditions thanks to Brexit and we could see Britain’s late payment crisis deepen significantly,” he said.

Hugh Gage, director of the UK’s Prompt Payment Directory, a database holding payment records of big businesses, also flagged up “limitations” in new duty to report rules.

“Only large companies are required to report and only twice a year, but late payment isn’t simply an issue between small suppliers and large customers,” he said in a statement.

Gage added: “Also, the duty to report requires debtors to report on their own payment practices, which is counterintuitive, plus an absence of context behind the reasons for the late payment makes it harder for small businesses to reach decisions before entering contractual relationships.”

Duggan emphasised the importance of the incoming Small Business Commissioner in addressing Britain’s late payment culture, urging government to give the role real powers to support suppliers.

“The future government must build on the initial momentum of the guidelines and actively support new ways in which the late payment problem can be solved, such as through alternative finance platforms,” he concluded.

Business Advice previously revealed small suppliers are often “bullied” into long payment terms, leading big firms to extend payment terms to up to 90 days and even write prompt payment discounts into contracts.

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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