The government will make it compulsory for large companies to publish information about their payment practices, business secretary Vince Cable has announced.
Government will develop a “robust” payment reporting framework, strengthen the Prompt Payment Code and give ministers new powers to tackle late payment, it said today in response to the Building a responsible payment culture consultation that launched last year.
It said the government would work with businesses to develop the framework, which would be given legislative underpinning and apply to larger firms, while recognising that ‘naming and shaming’ may discourage companies from being open about their terms.
“For too long too many large companies have been getting away with not paying their suppliers on time to maximise their profits”
Vince Cable, business secretary
It also outlined plans to give ministers greater powers to investigate complaints raised by the Cabinet Office’s Mystery Shopper scheme, after a large number of respondents to the consultation said fear of damaging commercial relationships and losing future contracts prevented them from complaining about late payment.
Dr Cable said: “For too long too many large companies have been getting away with not paying their suppliers on time to maximise their profits. It is small business that is suffering as a result and it needs to stop.
“The government has taken action to create a responsible payment culture but we need to go further. We will now make it compulsory for large companies to publish information about their payment practices so that those who are not playing fair can be held to account.”
More than 100 businesses, organisations and individuals responded to the consultation, including the Building and Engineering Services Association, the Civil Engineering Contractors Association, the National Specialist Contractors’ Council and the Specialist Engineering Contractors’ Group.
Carillion was the only major construction firm to respond directly to the consultation.
The government also said it would work with the Institute of Credit Management and businesses to consider how the Prompt Payment Code could be strengthened, and look in more detail at the proposals made by respondents to increase accountability of signatories to the code.
Some of the suggestions made by respondents included creating an independent and anonymous whistle-blowing process, naming and shaming those that do not adhere to the code’s principles and publishing successful challenges online.
No timescale was given for the introduction of these measures, but the government said they would be brought forward “when parliamentary time permits”.
The government will bring forward through legislation:
- Requirements for public authorities to accept e-invoices.
- Requirements for public authorities to run timely and efficient procurements.
- Greater powers for ministers to investigate complaints raised by the Cabinet Office’s Mystery Shopper scheme.
It will also:
- Work with businesses to develop a new, robust reporting framework to incentivise fair, transparent payment practices.
- Work with the Institute for Credit Management and businesses to consider how the Prompt Payment Code can be strengthened.
- Promote sector-based approaches to develop codes of best practice.
- Work with trade bodies to raise awareness of training opportunities for small businesses to access and manage sources of credit information.
- Address contractual barriers that prevent small businesses from accessing alternative finance, such as invoice finance and factoring.
The government rejected creating an ‘upper tier’ of the Prompt Payment Code, which would require signatories to adhere to stricter payment practices.
It also ruled out introducing a maximum legal payment period across all industries, but said it would work to promote sector-based approaches, following the example of the Construction Leadership Council’s payment charter.
The response also confirmed that legislation would come into force later this year to require that 30-day payment terms are passed down all public sector supply chains and that public contracting authorities make public and transparent reports on their late payments, in line with Lord Young’s work on improving public sector procurement.
Forum of Private Business chief executive Phil Orford welcomed the government steering clear of introducing a maximum payment term, which he said would “over-simplify the variety of relationships that exist in the private sector”.
He added: “The Forum is also pleased the government is open to reintroducing reporting requirements for larger companies, creating greater transparency and highlighting good and bad payment practice.”
He added: “Strengthening the Mystery Shopper scheme, together with further measures on e-invoicing in the public sector, are excellent steps forward.”
However, he claimed the government had “ducked a crucial aspect of later payment”, the ‘obligation’ under EU late payment legislation to put in place a mechanism that allows businesses to maintain their anonymity while challenging grossly unfair payment terms.
He said: “The definition of ‘grossly unfair’ is hard to pin down, but being able to challenge it would create legal precedents to help other companies.”