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FSB makes three-point late payment reforms proposal

The Federation of Small Businesses (FSB) has issued a three-point plan to reform payment practices and “protect small suppliers against another Carillion payment scandal”.

A year on from the construction giant’s collapse, the body is recommending strengthening the Prompt Payment Code, adopting project bank accounts, and assigning non-executive directors to oversee the supply chain.


Project bank accounts see members of the construction supply chain – many of which are SMEs – receiving payment in five days or less from the due date, with the aim of easing cashflow through the system and supports closer working within the supply chain.


A YouGov poll commissioned by the Association of Accounting Technicians (AAT) and published this month showed that almost three quarters (73 percent) of MPs agree with reforms to the Prompt Payment Code.


The reforms are that the Prompt Payment Code:

  • Be made compulsory for companies employing more than 250 employees;
  • See maximum payment terms halved from 60 to 30 days;
  • Be supported by a clear, simple financial penalty regime for persistent late payers, enforced by the Small Business Commissioner.

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 crackdown 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.”


He added that assigning non-executive directors to take responsibility for supply chains is “the way to shift poor payment culture outside of British boardrooms.”

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