Cash is king is a phrase used often, and to some extent too much, within the construction industry. The reality is that it is the flow of that cash that supports growth and productivity. This is therefore hampered by late payments (amongst other things).
The problem is very real and is larger than you may expect. The total cost and impact of late payments is estimated to be £11 billion per year, closes down 38 UK businesses every day and impacts 1.5 million businesses every year.
The Government has already made changes, but is now focused on targeting the below four issues – all of which are evident with the construction industry:
- Late payment – when payments are made outside of the agreed payment terms;
- Long payment terms – with a particular focus on periods of more than 60 days;
- Disputed payment – which impact the time taken to pay, or the amount paid; and
- The application of retention to payments.
To target the above, the Government is seeking consultation feedback on the below proposed measures targeted at improving business to business payment behaviour:
| 1. Audit committees and board-level scrutiny of large company payment practices | The Government would like to encourage the discussion and scrutiny of payment practices at a board level. However, it accepts that this needs to be done in a proportionate manner and without significant regulatory burdens. Whilst two methods have been proposed, the views on alternative methods, as well as the effects and costs of those proposed are welcomed. |
| 2. Maximum payment terms | Amending The Late Payment of Commercial Debts (Interest) Act 1998 (the “Late Payment Act”) to reduced payments terms to a maximum of 60 days with a suggestion this could reduce to 45 days after 5 years. |
| 3. A deadline for disputing invoices | Amending the Late Payment Act to introduce a 30-day verification procedure with disputes to be raised within that period. In the absence of a dispute, then the invoiced sum is payable. |
| 4. Mandatory statutory interest | Amending the Late Payment Act to set a mandatory statutory interest rate on late payments. |
| 5. Additional reporting on statutory interest | Amending The Reporting on Payment Practices and Performance Regulations 2017 to include additional reporting requirements around statutory interest liabilities. |
| 6. Financial penalties for persistent late payers | Introduce new legislation to give powers to the Small Business Commissioner (the “SBC”) to issue financial penalties to persistent offenders. |
| 7. Additional powers for the SBC, including assurance of payment reporting data | Amending The Enterprise Act 2016 to grant the SBC additional powers to investigate poor payment behaviour, allow it to provide legally binding arbitration in disputes, and impose financial penalties or make arbitration awards post investigation and/or arbitration process. |
| 8. Use of retention clauses in construction contracts | Amend the Housing Grants, Construction and Regeneration Act (1996), to either prohibit retentions or to introduce requirements to protect retention funds deducted and withheld from insolvency and late or non-payment. |
The consultation details can be found here and will run from 31 July until 23 October 2025.
We will have to wait and see how may of the above proposals are subsequently legislated upon.
If you would like more information on this, please contact Lena Barnes.
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