Reporting on late payment
We’ve written before about late payment of commercial debts and the various attempts by the Government to address the issue – and it’s in the spotlight again following news items such as the collapse of Carillion.
The Late Payment of Commercial Debts (Interest) Act 1998 gives the right in certain circumstances to charge interest on late payment at the rate of 8% above base; but very few organisations have felt able to charge interest, and payment periods have been extended by many companies. There are many reports of large businesses insisting on a credit period of around 120 days, putting the cash flow burden on those who are arguably least able to deal with it.
The Government’s most recent legislative intervention has taken the “name and shame” approach. Large companies have to provide a report on their payment practices and payment record (click here for our previous article for an explanation of what makes a company “large” for these purposes).
This link takes you to a Government website where those reports are to appear. If you follow the link you will find there is very little there as yet. But there will be more detail as time goes by and it will be worth looking at it before entering into a contract with a large company.
The report is supposed to include their standard payment terms, any changes to those terms in the relevant period, the proportions of their payments made within 30 days, 31 to 60 days, and over 61 days and the average number of days taken to make payment. It is also to include the percentage of payments due within the reporting period that were not paid within the agreed payment terms.
This initiative does not require large companies to pay their debts within any particular period; but it does require them to make information on their payment practices public. It remains to be seen whether smaller businesses will do anything different – for example, decline to accept business from slow payers – as a result of having this information available.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.