Late payment proposals

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The government has come under fire from the Institute of Credit Management (ICM) for failing to tackle what it says is the key issue of what constitutes ‘grossly unfair’ in its proposed reforms to address the problems of late payment according to Harris & Co accountants Northampton.

Following a consultation on late payment issues in late 2013, the Department for Business, Innovation and Skills (BIS) has said it plans to do more to improve best practice in the public sector, including a requirement that 30-day payment terms are passed down all public sector supply chains and that the contracting authorities make public and transparent reports on their late payments.

There will also be new legislation requiring public authorities to accept e-invoices and to run timely and efficient procurements, along with greater powers for ministers to investigate complaints raised by the cabinet office’s ‘Mystery Shopper’ scheme.

However, BIS has decided against introducing a maximum legal payment period and ICM says it has also failed to tackle the question of how to judge when terms can be considered ‘grossly unfair’.

Philip King, ICM chief executive, said: ‘What is critical is the certainty of payment, more than being caught in arguments over 30 or 60-day terms.

"But there clearly comes a point when the terms of payment should be deemed unfair, for example when they are imposed by the buyer without consultation or negotiation, when they are retrospectively applied to contracts already in place, and/or where they are demanded in circumstances that will clearly be to the detriment of the supplier and exploiting the weakness of his bargaining position. We articulated this view in our official response, but it appears the issue has been ducked.’

King claims the government has also missed the opportunity of clarifying the situation whereby ‘organisations officially recognised as representing undertakings, or organisations with a legitimate interest in representing undertakings, may take action... on the grounds that contractual terms or practices are grossly unfair’, as laid out in the EU directive on late payments.

‘This clause would allow business organisations to challenge unfair contract terms without jeopardising individual supplier contracts/relationships and is vital to the successful implementation of the recast directive,’ King said.

In its response to the consultation, the government also indicated that it will look to strengthen support for the PPC, including more accountability for signatories, as well as developing new codes of best practice with industry and sector bodies.

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