Calls for prompt payment regulation reforms

To reduce financial pressures faced by many SMEs, there are calls for an extension to the Payment Practices and Performance Regulations 2017 beyond April 2024.

The Association of Professional Staffing Companies (APSCo UK) and APSCo OutSource highlighted to the government via a consultation submission to the Department for Business and Trade and the Department for Business, Energy & Industrial Strategy, that those on the lower end of the supply chain face unfair financial pressures due to their position in the process.

The APSCo points out that contractor and contingent resources often require payment within 7-28 days of timesheet submission, while end clients have longer payment terms that lie between 30-60 days.

It warns this isn’t sustainable in the current climate and is causing undue financial strain, often to SME businesses.

Melanie Forbes, Managing Director of APSCo OutSource, explained, “Our members across both the outsourcing and recruitment sectors are reporting increasing payment term periods with end clients which is stretching the purse strings of small to medium size businesses that often face footing the initial bill for large swathes of contractors without quick reimbursement.

“It’s common to see second tier suppliers bridging a payment gap of up to three months due to terms imposed on them or the managed services provider (MSP) by the end client.

“In order to ensure fair and prompt payment terms across the recruitment supply chain, we believe a number of changes are necessary, including amending the current regulations to ensure more accurate reporting is required.”

Melanie added, “This includes payment practices and performance reports being included in director reports in order to hold firms accountable for prompt payment. We also believe it should be written into regulation that the total value of payments due that have not been paid within the agreed terms should be reported on to ensure long payment terms aren’t hidden in prompt payment reporting.

“Clarity around payment dates used for reporting across supply chain finance is also needed. Pay when paid terms are a risk to the stability of the supply chain and the second tier supplier faces a potential loss of control around the payment and the contractual right to enforce the debt owed when unpaid.

“We believe that the regulations should require a qualifying business to separately identify payment terms on contracts where they require advance payment to workers or other suppliers in a chain, or it is a statutory requirement, as in the case of a supply of a contingent worker to an end hirer. It should also be a requirement to disclose the differential in payment terms between their terms and those of the party paying the worker or worker’s employer.

“With late payments a real concern for our recruitment and outsource members, the proposed amendment to position disputed invoices as a separate entity is welcome news, though we would recommend that this should include delayed payments due to complex billing processes.”

To find out more about contracting please contact Jaime on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.