Webinar: Consultation on new Government Proposals to Tackle Late Payment and Retention

1. Audit committees and board-level scrutiny of large company payment practices

In September 2024, the government reaffirmed commitments to legislate on audit committees and other board level responsibilities to improve payment practices. The government believes further positive change could be achieved by increasing discussion and scrutiny of large companies’ payment practices at board level.

2. Maximum payment terms

The policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, removing the exemption that allows businesses to agree to payment terms longer than 60 days if considered not ‘grossly unfair’. This will effectively limit payment terms between UK businesses to 60 days. Subject to further consultation, this policy may subsequently reduce this limit from 60 days to 45 days after 5 years.

3. A deadline for disputing invoices

The policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, introducing a 30-day invoice verification period. Businesses who wish to raise a dispute will need to do so within 30 days of receiving an invoice, otherwise they will be liable to pay the invoice in full within the agreed payment terms, alongside any statutory interest or debt recovery costs if the invoice is paid late.

4. Mandatory statutory interest

The policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, making the statutory interest rate payable on late payments mandatory. This will remove the ability to negotiate compensation rates lower than the statutory rate. This will increase existing financial incentives to pay invoices on time.

5. Additional reporting on statutory interest

The policy will amend The Reporting on Payment Practices and Performance Regulations 2017 to include additional reporting requirements around statutory interest liabilities. This will further increase transparency around poor B2B payment behaviour and informs other policies that aim to improve the utilisation and payment of statutory interest.

6. Financial penalties for persistent late payers

The policy will introduce new legislation, which gives the SBC powers to issue financial to businesses who persistently pay their suppliers late. The policy will use payment behaviour data submitted by businesses under The Reporting on Payment Practices and Performance Regulations (2017) to identify and issue financial penalties to persistently late-paying businesses, with penalties based on businesses’ unpaid statutory interest liability.

7. Additional powers for the SBC, including assurance of payment reporting data

The policy will amend The Enterprise Act 2016 to give additional powers to the SBC. The additional powers would improve the SBC’s ability to conduct investigations into poor B2B payment behaviour (beyond its current complaints scheme), allow it to provide legally binding arbitration in disputes, and impose financial penalties or make arbitration awards after an investigation or arbitration process.

The policy will also enable the SBC to investigate the accuracy of the payment reporting data that large businesses provide under The Reporting on Payment Practices and Performance Regulations 2017. This will improve the quality of reporting data and support the reporting regulations original objectives of improving transparency around B2B payment behaviour.

8. Use of retention clauses in construction contracts

The policy will amend Part 2 of the Housing Grants, Construction and Regeneration Act (1996), to either prohibit the use of retentions or to introduce requirements to protect retention funds deducted and withheld from insolvency and late or non-payment.