In the light of the recent Carillion scandal, the Government have announced that business groups will now be able to seek legal action on behalf of their members for late payments.

Last month, the second largest construction and services company in the UK, Carillion, collapsed after banks refused to lend it any more money. The company was liquidated, bringing down one of the government’s most important suppliers and grinding hundreds of projects across the country to a halt.

In addition to this, the collapse of Carillion also highlighted a pressing problem in the UK – that thousands of contractors and small businesses are being expected to wait more than 120 days to receive payment on their invoices.

Chair of the Commons business committee, Rachel Reeves, accused the construction giant of “ruthlessly exploiting its position to bully contractors”.

The new legislation will mean that trade bodies will now be able to seek High Court injunctions for contractors when they are paid late by either a private company or a state department.

Late payment – what have the Government said? 

On their Late commercial payments guidance page, the Government have stated that, once a payment becomes late, the SME or contractor can claim interest and debt recovery costs.

Some businesses choose to set their own payment dates in contracts or invoices, so if a client misses their agreed payment deadline, it can be considered late.

However, if you do not have your own predetermined payment terms, the law says that a payment is late 30 days after either:

• When the customer receives your invoice, or
• When the goods or service is delivered (if this comes later than the issuing of the invoice).

Even if you do have an agreed longer payment period between yourself and another business, if this exceeds 60 days, the agreement must be fair to both parties involved.

Late payment – why has the change been made?

The collapse of Carillion has hurt thousands of businesses and stalled projects all around the UK. It has since been found that the company could owe as much as £1 billion in unpaid invoices. This has left more than 30,000 small British businesses and self-employed contractors facing financial hardship.

The British Business Bank quickly announced following the liquidation that they would supply high-street lenders with government-backed loans to support the contractors affected as part of their £100 million support package.

However, according to Peter Kubik, partner at accountancy firm UHY Hacker Young , many of Carillion’s suppliers will receive less than 1p for every pound they are owed, which will have a “huge knock-on effect amongst smaller firms”.

The Government’s new legislation aims to ensure small businesses are no longer left to deal with extremely long waiting periods on payments.

Employment agency Reed has recently coined the phrase “Doing a Carillion” for larger companies enforcing unfair 90 day payment terms. With the new rules in place, businesses attempting to do this could now be taken to court by the CBI and many other business groups.

The late payment crisis is not only an issue for individual businesses in the UK. In fact, the Government have estimated that the economy would get a £2.5 billion boost if all contractors were paid on time.

Late payment – what can you do?

As a contractor or small business owner, chasing late payments can seem daunting. However, when the new legislation comes into effect at the end of the month, various business groups will be able to take legal action on your behalf to ensure your clients pay up.

Of course, this is still in a worst-case scenario. To minimize late payments on your invoices, make sure you enforce strict payment terms for all clients and threaten to charge interest if necessary.

When you produce an invoice, include a breakdown of the product or service you are supplying as well as payment information. Then, if a customer continues to pay late, you can consider taking legal action.

If you would like any further advice about late payments, or managing your cashflow whilst waiting on a payment, speak to the Burton Beavan team today on 01606 333 900 or email hello@burtonbeavan.co.uk.