Should UK late payment legislation be more like Australia?
The BBC Radio 5 live Daily show on April 11th featured a segment about the scale of the UK late payment problem, and examples of how laws already in place elsewhere around the world could hold inspiration for UK late payment legislation.
In the broadcast, hosted by Adrian Chiles, a number of government representatives spoke to the host and to the station’s business expert Colletta Smith about the failings of current UK late payment legislation, and the possible ways in which it could be improved, based on countries including Australia and the USA.
One of those interviewed was Labour MP Bill Esterson, the party’s shadow business minister, who explained that his wife runs her own business and sometimes faces a delay of 180 days or more to receive payment from large companies.
He said: “You’ve got 50,000 businesses going bust every year because of late payment, it’s absolutely scandalous. It’s really bad not just for those businesses, but for the people who work for them and for the wider economy.”
But he also conceded that there are circumstances in which small business owners might not believe it is in their best interests to pursue an overdue payment, especially from a larger customer or for those whose income is derived mainly from a single contract.
Mr Esterson added: “If you depend on a large company for your livelihood, are you really going to challenge them when they don’t pay you on time? That’s what happens – people don’t challenge because they might lose their next contract.”
This of course raises the question of how to overcome this sense of inertia when it comes to making a late payment claim – and to reinforce current UK late payment legislation so that it serves those small businesses who might currently feel unable to start a claim against a large non-paying customer.
Late payment laws around the world
Mr Esterson looked to best practice from overseas in order to offer some possible ways in which to strengthen UK late payment laws, which are currently based largely around the EU Late Payments Directive, combined with the UK’s own Prompt Payment Code and legislation that requires payment within 30 days on public sector contracts and a default of 60 days on private business to business work.
He said: “I think there are two things. One happens in Australia, which is binding arbitration backed up by the teeth of some pretty hefty fines for people who don’t comply, and the second thing is procurement. £500-600 billion a year is spent by the government with large companies, and if you want money from the government for a contract, you should pay your suppliers on time as well. You get paid on time; you should pay on time. And that happens in America, by the way, so there’s good practice around the world that works, and we can do it here.”
How can UK late payment laws help?
The current UK late payment laws – and especially the 30-day default payment deadline on public sector contracts – may seem to be in the favour of large companies, who may be paid by the government within 30 days yet choose to pay their own suppliers late.
But there are measures that can be taken when an invoice goes unpaid by the deadline date, and especially on aged debts up to six years overdue; under the current legislation, statutory interest can be added, while any reasonable debt recovery fees can also be claimed from the debtor.
In many cases just the threat of such action is enough to get the original invoice amount paid, while in other instances, it can be worth insisting on the extra interest and penalty fees in order to increase the amount paid to you.
The important other thing to remember is that UK late payment legislation is largely voluntary, meaning it is your choice whether or not to take action. If you have outstanding invoices even several years old, you can still decide to take action on them at any time, usually up to a maximum of six years later.
While you may worry that doing so will jeopardise a lucrative contract, any work coming into your company is only worth as much as it pays – and even then, the longer it takes to receive payment for the work you do, the worse it is for your cash flow.
Voluntary late payment legislation means it’s your decision, but the rules are in place and there to support you in claiming money that is rightfully yours – no matter who owes it to you and how large their organisation might be.