The government has published its response to the consultation on late payment legislation.

Monday 25 February 2013

The Department for Business, Innovation and Skills has published the government’s response to a consultation on late payments, which will continue to protect smaller businesses from bad payment practice.

EU legislation will come into effect from March 16th that essentially extends the UK’s existing payment code across the Union. It will mean that payments are to be expected within 60 days unless expressly agreed in the contract. Member state governments, however, will be expected to pay within 30 days, which already matches UK best practice.

Government policy states that departments should aim to pay 80 per cent of unchallenged invoices within five days, and contracts with primary contractors stipulate that they should pay all of their suppliers within 30 days.

To incorporate the provisions of the directive, the Late Payments Act (1998) will be amended rather than replaced, after most respondents argued for it to remain in place.

One contentious aspect of the directive that will not be adopted is the stipulation that in the case of healthcare or other areas in which government procurement is subject to market forces and transparency requirements, the payment period may be extended to 60 days.

However, the government never supported this move, and it appears it is not alone: more than three-quarters of those who responded to the consultation objected, with many public bodies responding by pointing out that they had already committed to the Prompt Payment Code to stay within the existing limits.

In addition, the compensation awarded for the recovery of costs is to remain at the current three-tiered system of £40, £70 and £100 depending on the size of the bill, since the EU minimum of 40 euros would constitute a reduction.

Delays in payment were broadly felt to be hampering business activity and economic growth as well as damaging relationships between buyers and suppliers. Smaller businesses and especially self-employed contractors tend to suffer more since they have a smaller capacity to temporarily absorb costs, leaving them particularly vulnerable to bad practice on late payments.


By Victoria McDonnell

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