Legislate to Prevent Late Payments

The building services sector has welcomed the government’s announcement of a consultation on late, long and disputed business to business payments.

The UK government says it is committed to tackling the scourge of late payments, which affects over 1.5 million businesses, costs the economy almost £11bn per year and closes down 38 UK businesses every day.

The proposals aim to improve cash flow through supply chains and support small businesses with payment disputes.

The Department of Business & Trade stated:

“A healthy cash flow is critical for the survival and growth of the UK’s small businesses. Paying hard-working employees, settling bills with other businesses, and investing in new capital, skills and ideas for the future – all of this relies on timely and fair payment.”

The consultation will run until 23 October 2025 and welcome views from all businesses, trade representative organisations, member organisations and interested parties to the proposals.

There are specific proposals referring to the use of retention clauses within construction contracts and the government says it welcomes responses from those in the construction sector and wider who are party to a construction contract

The consultation, which is part of its wider Small Business Strategy, has been welcomed by the Building Engineering Services Association (BESA), describing it as a chance to solve late payment “once and for all”.

Seen as an ongoing threat to small engineering businesses posed by late payment and retentions, the consultation will seek answers to a problem that BESA maintains has been undermining SMEs in construction-related sectors for decades and continues to force many small specialist engineering firms into insolvency.

“Withholding retentions across the supply chain has been an outdated practice which disproportionally impacts the cashflow of small businesses across the construction,” said Actuate UK, the umbrella body for UK engineering services.

“Actuate UK and its members will now widely consult and submit a response supporting a solution that is fair, enforceable and sustainable,” it said.

Under draft legislation, the Companies (Directors’ Report Payment Reporting) Regulations 2025, companies with more than 250 employees will be required to disclose their payment performance in their annual reports. This will include data on how long it takes to pay suppliers, and the percentage of payments made within agreed terms.

The aim is to increase transparency and accountability. Currently, payment data is submitted to a government portal, but this is not widely viewed. Embedding payment performance in annual reports instead would make poor practices more visible to clients and potential suppliers.

Audit committees could also be given greater responsibility for overseeing payment practices and holding executive teams to account.

“We have been waiting a long time for proper late payment legislation backed up by real enforcement,” said BESA’s legal and commercial director Debbie Petford.

“We encourage companies from across the engineering services sector to take this once in a generation opportunity to put forward their solutions and help lay the foundations for a future business environment in which they can thrive – not just survive.”

She added that a succession of voluntary pledges on late and unfair payment over the years had not helped the cause of sub-contractors struggling to claim fair payment “for work they have completed in good faith”.

“The collapse of ISG last year demonstrated just how vulnerable small contractors are to insolvencies further up the supply chain. Too many perfectly good businesses have been lost because they have been denied the lifeblood of healthy cash flow,” said Petford.

“This consultation is the opportunity we have been calling for to address this blight on our industry once and for all.”

BESA said it would be contacting its members to explain how they can take part in the consultation.

Source: The Cooling Post