What’s next for the late payment of commercial invoices?

An overview of the measures outlined by the UK government on 2 October 2023:

1. Extending the Reporting on Payment Practices and Performance Regulations 2017 – originally due to expire on 6 April 2024. These regulations require in-scope businesses to publish information about their payment practices – the intention of this is to eradicate bad practices through increased transparency. The government also intends to increase the reporting requirements to require in-scope businesses to publish details of the value of invoices which are paid late, the value of disputed invoices and retention payments for businesses in the construction sector.
2. Broadening the powers of the Small Business Commissioner to enable the Commissioner to undertake investigations and publish reports where necessary on the basis of anonymous information and intelligence.
3. Strengthening the Prompt Payment Code so that businesses must reaffirm their commitment every two years to stay on it. This voluntary code gives companies and public bodies the opportunity to commit to paying their suppliers on time and fairly. We are also seeing a trend of businesses pledging to be more mindful in their daily activities: where consideration for the impact of late payment would be an important point for debtors to consider – it may also facilitate more amicable resolutions where both parties are understanding of one another’s situations.
4. Providing greater advice to small businesses on negotiating payment terms and using digital payment technology to manage cash flow.

The government hopes these measures will foster a stronger culture of paying on time and provide businesses with more predictable and reliable cash flow. In turn, it is intended that this will provide an opportunity to increase investment and productivity across the economy, as well as bringing growth to the economy. Small Business Minister, Kevin Hollinrake has commented that: “SMEs that are paid on time can do more business, scale up and make more profits; delivering growth for the economy.”

Changes to EU law
The above measures announced in the UK also follow the European Commission’s announcement on 12 September 2023, of a new regulation to combat late payments in commercial transactions. The proposed regulation would replace the existing Late Payment Directive (2011/7/EU). Its proposals include:

• a maximum payment term of 30 days for commercial transactions (which cannot be derogated from);
• automatic rights to late payment interest and compensation fees which cannot be waived; and
• the requirement for member states to set up enforcement authorities to monitor compliance and issue sanctions against those organisations which are late payers.

The regulation needs to be adopted by the European Parliament and Council and will, if implemented in its current form, apply one year after becoming law. It represents a significant departure from the current directive and could impact UK businesses contracting with EU entities, especially if contracts are formed on the basis of the EU entities’ terms and conditions.

Our Disputes team is highly experienced in advising SMEs about late payment issues, either as a creditor or debtor, including internationally. If you need help, please get in touch.