FSB outlines three point late payment reforms

Strengthening the Prompt Payment Code, adopting Project Bank Accounts, and assigning Non-Executive Directors for the supply chain, are vital reforms needed to protect small suppliers against another Carillion payment practices scandal.

One year on from the collapse of the construction giant, the Federation of Small Businesses (FSB) is urging the Government to implement a three point plan which it believes will stamp out poor payment practices running rife in the UK.

The three-point plan includes the following reforms:

• The Small Business Commissioner should use his new powers to strengthen the Prompt Payment Code. This includes introducing tougher penalties for those companies that break the rules.
• Non-Executive Directors responsible for payment practices and supplier relationships should be appointed to the boards of big companies
• Adopt Project Bank Accounts in all major public sector contracts, with proper parliamentary accountability to ensure their use

FSB National Chairman Mike Cherry, said “The collapse of Carillion was a watershed moment that brutally exposed the shocking ways that some big businesses treat their suppliers.”

“The construction giant used its dominant position to squeeze smaller firms with late payments and unreasonable payment terms in an attempt to shore up its own precarious position. These practices did not save them and their failure has resulted in very real human consequences. Many small businesses were left with nothing for the hard work they had undertaken beforehand and given nothing in compensation after. Some didn’t survive.

“A year on, we have seen the Government be proactive in attempting to improve public procurement and stamp out poor payment practices. Recent reforms to crack down on public sector suppliers that don’t pay on time are welcome and send a clear message that paying late is not okay. However, more must be done to ensure private, as well as public sector, supply chains pay on time.”

“Firstly, the Prompt Payment Code, Carillion being a signatory at the time of its collapse, must be radically strengthened. The Small Business Commissioner must use his ‘name and shame’ powers to expose firms who flout the rules.”

“Secondly, Project Bank Accounts would enable prompt payment when work is completed and prevent big companies from hoarding money to improve their own balance sheets.”

“Lastly, we believe the way to shift poor payment culture outside of British boardrooms is through appointing a Non-Executive Director to look after a firm’s supply chain, chairing a ‘supply chain’ committee or beefed-up remuneration committee and setting out the results of their work in the annual report. We have seen the Government take an active role in this space by appointing a Non-Executive Director in each Government Department who will be responsible for payment practice. We want to see this move expanded to larger companies.”

“These reforms are not the silver bullet that will immediately bring an end to the scourge of poor payment practices but they will certainly go a long way to achieving this.”

Today (Tuesday 15th January), the Public Sector Supply Chains (Project Bank Accounts) Bill will be brought before Parliament. The bill, which will effectively make Project Bank Accounts mandatory for certain Government contracts, has been secured by Labour MP for Oldham East and Saddleworth, Debbie Abrahams. FSB is urging the Government and cross-party MPs to support it.