Directors of large companies in the UK to be responsible for payments to SME

Directors at large British companies may soon be responsible for making timely payments to smaller companies, if proposals by small business minister Kelly Tolhurst go through.

Tolhurst has come up with a few new measures to improve payment times to small businesses. They include new powers for the small business commissioner to penalise late payments through fines and binding payment plans. She also plans to set up a new fund to encourage businesses to use technology to simplify invoicing, payment and credit management.

The most radical proposal is to make company boards accountable for supply chain payment practices, instead of the finance director as previously proposed.

The Chartered Institute of Procurement and Supply has supported these measures. Chief Executive Malcolm Harrison said the current practice of self-regulation has not made any significant impact, as it tolerates irresponsible late payments.

But he also warns enforcement is crucial for the measure to work: "It is essential that these new measures are not launched and then ignored but are rigorously enforced, with consequences, to help create a responsible payment culture that will benefit all companies and support a healthy economy."

Some professional bodies have said the government is not forcing large companies to sign the Prompt Payment Code to reduce the late payments window under the code from 60 to 30 days.

This is because companies that voluntarily sign up to the Prompt Payment Code are required to pay their invoices within 60 days and make sure they pay 95% of their invoices within the period. Signing on the code does not mean the company gets to stay on, as their payment performance needs to comply with the code. Several companies have been recently suspended from the code, including big names such as Vodafone, Prudential, British American Tobacco and Fujitsu Services.

The UK government is trying to make life easier for small businesses. They are usually the victims of late payments from big companies, which tend to abuse the former as unlikely sources of financing. From September, any major contractor that bids for a government contract with a value above £5 million per year will be required to answer questions about its payment practices and performance.

To set an example, the government announced in October that it would aim to pay 90% of undisputed invoices from SMEs within five days.