Government consults on proposals designed to improve cashflow for small businesses

7 minute read
23 February 2015


Late payments and "standing up for small businesses" have emerged as key political issues for most of the main political parties in the run up to the UK general election. The Department for Business Innovation & Skills (BIS) has issued its latest proposals for tackling the issue of late payments, particularly aimed at the effect they have on small businesses.

The proposals are set out in a consultation document on challenging grossly unfair terms and practices.

In particular, the BIS consultation seeks views on:

  • how to provide business representative bodies with additional powers to challenge "grossly unfair" contractual terms and practices; and
  • whether and/or how to better define "grossly unfair".

What's the current position?

Existing law provides for a maximum 60 day payment term between businesses, unless they agree a longer term that is not grossly unfair to the supplier.

Under existing law, representative bodies can bring claims on behalf of SMEs where standard payment terms purport "to oust or vary the right to statutory interest in relation to qualifying debts". This scope is narrower than provided for by the 2011 EC Directive on late payment, which extended the provision to cover any contractual terms or practices that are deemed grossly unfair rather than those for general use only. These wider powers were never transposed into UK law.

What's proposed?

BIS proposes to make it easier for representative bodies to assert their rights under existing legislation. Measures include:

  • expanding representative bodies' power to challenge any terms or practices deemed "grossly unfair";
  • ensuring that claims can be brought on behalf of single businesses rather than just group claims; and
  • publishing a list of officially recognised representative bodies. BIS hopes this will speed up the process claims as a claimant will not have to go through the step of proving it is a representative body.

BIS also sees part of the problem as the lack of a concrete definition of "grossly unfair" in the EU Late Payment Directives[1]. It hopes that by making it easier for representative bodies to bring claims the court will develop guidance and the government will not have to intervene.

Re-defining "grossly unfair"?

Under current legislation it is very unclear what is meant by grossly unfair.

BIS is consulting on whether to enhance this definition. In particular, it cites the equivalent Irish legislation which includes a number of additional indicative criteria that a court could consider when determining what is "grossly unfair practice" including the strength of the parties' bargaining positions.

What next?

BIS is receiving comments on the proposals until 9 March 2015. It then intends to publish draft regulations based on the responses and consult on these in the summer. At this point, we hope to be able to more fully assess the government's proposals.

With a general election to be held in May this year, it will have to be seen if this proposal survives any potential change in government and/or whether this is merely a pre-election move.

What else?

The BIS consultation on late challenging grossly unfair terms and practices does not stand alone. The government has also held consultations recently on two further proposals aimed at tackling problems related to late payment suffered by small businesses.

BIS has published separate consultations and draft regulations which proposed:

  • to nullify bans on invoice assignment that are inserted into business to business contracts, which could otherwise prevent a supplier from accessing some forms of alternative finance; and,
  • a new strict reporting regime for large and listed companies to publish detailed information about their payment practices.

These proposals both arise out of powers contained within the Small Business, Enterprise and Employment Bill which is currently in the latter stages of the legislative process with the House of Lords.

Consultations on these measures closed in early February. BIS is expected to publish its response to the feedback it received within three months. At this point it will possible to see if the proposals have been more fully developed or amended in anyway.

In addition to these measures, BIS has also committed itself to strengthening the Prompt Payment Code and recently established the Late Payment Advisory Board to advise on improvements to monitoring and enforcing the code. The Prompt Payment Code is a voluntary code. Its signatories commit to paying their suppliers using clear terms and to ensuring that there is a proper process for dealing with any issues that may arise.

Useful links


[1] 2000 EU Late Payment Directive (2000/35/EC) and 2011 EU Late Payment Directive (2011/7/EU).

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