Small suppliers to get additional means of holding late payers to account, says expert

Out-Law News | 25 Oct 2016 | 9:30 am | 3 min. read

Access to a Small Business Commissioner will give small suppliers an additional means of holding big businesses to account over payment issues, an expert has said.

The Department for Business, Energy and Industrial Strategy (BEIS) is now consulting on the detail of the commissioner's complaints-handling functions, which will be set out in regulations. The consultation closes on 7 December.

Among the topics on which the department is seeking views are how 'small businesses' within the scope of the commissioner's role should be defined; criteria for making complaints to the commissioner; how the commissioner will consider, determine and make recommendations for complaints; and how the commissioner will exercise his or her reporting role.

The role of Small Business Commissioner was created under the 2016 Enterprise Act, although it has not yet been filled. As part of the commissioner's eventual remit, he or she will be able to help small businesses resolve payment disputes with their larger customers without having to go to court. The new commissioner will also be able to consider whether an act or omission relating to payment was "fair and reasonable" in the particular circumstances of the case.

The complaints scheme will cover complaints from small business suppliers about payment issues with larger businesses with which they have a previous, current or potential supply relationship. Once the small business has made its complaint, the commissioner will usually seek representations from the large business before he or she makes a determination. Determinations made under the scheme will not be legally binding, and the commissioner can request but not require information from either party to inform the determination.

'Payment issues' is defined broadly by the consultation, and can include acts or omissions in respect of payment as well as the act of payment or failing to pay. Disputes about prices for goods and services, matters currently going through legal or adjudication proceedings and matters that are within the remit of another body, or for which the small business has a statutory right of adjudication, will be out of scope of the new scheme, as well as acts or omissions that occurred before the complaints scheme began.

Large businesses should familiarise themselves with the proposals, and be aware of the potential for reputational damage should the commissioner use his or her discretion to publish reports about complaints, according to commercial law expert Ben Gardner of Pinsent Masons, the law firm behind

"These latest developments further demonstrate the government's continued determination to protect the cash flow of small businesses and incentivise large businesses to ensure that they have appropriate payment terms and procedures in place," he said. "Large business should be ready for further developments in this area with changes due to be made to the Prompt Payment Code, and forthcoming regulations which require large business to publicly report on their payment practices."

"Payment terms and practices look to be moving to the heart of corporate social responsibility and poor practices could lead to reputational damage," he said. "Large businesses could steal a march on their competitors by reviewing their payment terms and practices in order to demonstrate a market leading approach and reduce the likelihood of negative media coverage in the future."

Under the Enterprise Act, the new complaints scheme will only be available to businesses with a headcount of less than 50, keeping eligibility broadly in line with the statutory definition of 'small business'. The consultation proposes that headcount be calculated by reference to the number of individual staff, not full-time equivalent staff; and that it should include employees, secondees, agency workers, partners and directors. It should not include self-employed individuals and apprentices. Small businesses that are part of a larger corporate group will not be excluded from the scheme, provided that they meet these criteria.

The government is required to include criteria having a bearing on 'fairness and reasonableness' in the regulations, which the commissioner will be required to consider when reaching a determination. The consultation proposes that the "conduct, behaviour and practice" of the parties should be included, but does not propose defining this further "to avoid being too prescriptive and inadvertently limiting the commissioner's consideration of complaints". However, BEIS has listed some potential criteria that could be included in the regulations should respondents disagree.

The regulations must also set out a list of non-exhaustive factors which the commissioner should take into account when deciding whether to name the offending large business in a published report. This decision will be taken on a case by case basis, and the large business will be informed in advance and will have the opportunity to make representations should the commissioner choose to name it in the report. BEIS has suggested that the commissioner be required to take these representations into account when deciding whether to publish. The commissioner should also be required to consider the seriousness and deliberateness of the conduct and any likely deterrent effect, among other factors, according to the consultation.

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