UK Targets Supplier Contracts In Next Late Payments Effort

The U.K. government is deploying yet another initiative aimed at combating late payments to small suppliers.

An announcement on the Gov.UK website on Monday (Sept. 10) said Small Business Minister Kelly Tolhurst has proposed new legislation that would allow small businesses to access invoice financing, bolstering SMBs against unfair corporate customer payment contract terms. Currently, corporates are allowed to include contract agreements with suppliers that prevent those firms from borrowing against unpaid invoices.

The new law would declare those contractual restrictions ineffective, allowing financial service providers to disregard that agreement.

“The U.K.’s 5.7 million small businesses are the backbone of our economy and central to our modern Industrial Strategy, with more than 1,000 starting up every day,” Tolhurst said in a statement. “These new laws will give small businesses more access to the finance they need to succeed and will help ensure that they have a level playing field from which to set fair contracts with the businesses they supply.”

This marks the latest in a series of government efforts in the U.K. to curb late payments to small suppliers and other unfair agreements in supplier contracts. According to Gov.UK, larger businesses often use “restrictive” contractual agreements to maintain control over their smaller suppliers, which have fewer resources and leverage to negotiate more favorable payment agreements.

Tolhurt’s announcement comes several months after the U.K. Federation of Small Businesses urged U.K. Chancellor Philip Hammond to turn his attention to the issue of late payments, describing the problem as a “crisis” that “will only worsen when we see a fundamental cultural shift in the boardroom, with those at the top collectively addressing the issue and directors held accountable for supply chain support.”

At the time, the FSB noted that its own research found 84 percent of business owners in the U.K. report being regularly paid late by corporate customers. More than a third said longer payment terms were forced onto them by corporate customers.