It has been announced that companies looking to win major government contracts will have to prove they pay their bills within 30 days.
Chancellor Jeremy Hunt said this week that to help small businesses, Whitehall’s procurement rules will be strengthened to speed up payments from big companies to their supply chains.
From April 2024, those bidding for government contracts worth more than £5m will have to prove they pay their bills within an average of 55 days or face being banned from work.
The following year the average time will be shortened to 45 days, with a 30-day period to be introduced in the future.
Supply chain payments in government jobs already have to be made within 30 days, but the new rules will tighten control over all payment deadlines.
Whitehall has also previously said that contractors who cannot show they pay 90 per cent of invoices within 60 days are “likely” to be excluded from government contracts.
Hunt said: “One of the key challenges facing SMEs is the cash flow implications of late payments, which prevent small businesses from investing and innovating. […] The government will lead by example by introducing stricter payment term requirements for companies bidding for large government contracts.”
Electrical Contractors Association (ECA) legal and business director Rob Driscoll said he welcomed the announcement, which follows the trade body advising the Cabinet Office on issues faced by ‘face the SMEs, together with the Construction Management Council and other bodies.
“This is a major achievement for ECA in leveling the trading environment in which our members operate. It clearly demonstrates that supply chain liquidity and cash flow are policy priorities,” he said.
Driscoll is the chair of the Cabinet Office’s SME Payments Advisory Group, which has been examining the issue.
Last month, the Department of Business and Trade said contractors would be forced to report details of their withholding as part of reforms to the Pay Time Reporting Act.
It also pledged to “advance legislation to expand payment performance reporting obligations,” with new metrics that will include “a value metric, so businesses and commenters can see the value of invoices, including invoices paid late, and a disputed invoices metric.”
