Late Payments Consultation BALI Response

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Late Payments Consultation: BALI Response Formed in 1972, the British Association of Landscape Industries (BALI) represents the interests of approximately 1800 member businesses and over 950 accredited members. Members include landscape contractors, suppliers, garden designers, arboriculturists, training providers, students and other related professionals.

Executive Summary BALI welcomes this Government’s ambition to address the challenge of late payments which is felt by businesses across the UK. Cash �ow and late payments in particular present a signi�cant challenge for small landscaping businesses. According to BALI’s Lay of the Land Report, 15% of respondents rate late payments as ‘very challenging’ to their business, with a further 16% rating it ‘challenging’ 1, highlighting that this is an urgent priority for over a quarter of BALI members.

With only 14% of members reporting to feel ‘very con�dent’ about their businesses ability to expand or maintain business over the coming year, the need for intervention on late payments is vital.

BALI broadly agrees with the proposed changes as they will help address chronic late payments and support positive cash �ow for landscaping businesses. These changes will increase con�dence for businesses and reduce cash �ow concerns and support a healthy economy.

Consultation Response Question 10: Maximum Payment Terms BALI strongly agrees with the proposed limit of UK payment terms to 60 days. This will help landscaping businesses to have con�dence to invest in skills, projects, expansion, and other business needs as there will be greater certainty that they will receive the money they are owed in a timely manner.

Research done by the FSB shows that 50,000 business closures a year could be avoided if late payments were made on time 2. There is an unfair burden on SMEs to manage their businesses without due processes to ensure they receive the money they are owed. The construction

1 https://www.bali.org.uk/help-and-advice/documents/lay-of-the-land/lotl-small.pdf 2

https://issuu.com/federationofsmallbusinesses/docs/fsb-time-is-money?fr=xKAE9_15JNQ

Supporting, representing, and accrediting the landscape industry Although every efort has been made to ensure accuracy, neither BALI nor the author can accept liability for errors and or omissions.

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sector, which is inclusive of the hardscaping sector was the most afected sector, with 34% reporting more late payments than in the previous three months.

Late payments also contribute to cash �ow challenges, as businesses that have delayed payments will struggle to make their own payments, creating a negative cycle throughout the landscaping industry. In the Lay of the Land Report, 28% of respondents said cash �ow was ‘challenging’ or ‘very challenging’, making it clear that the current system is functioning at the expense of small businesses. Additionally, businesses with reduced cash �ow will be more reluctant to invest and expand, as they might lack con�dence in their ability to provide capital or reduce their willingness to invest. There are many new and innovative technologies that could positively impact the landscaping industry, but without con�dence or capital with which to invest, the uptake of new technologies will be slow throughout the industry.

Currently, half of businesses believe late payments to be an inevitable cost of doing business 3, which shows that this is issue is widespread and current measures to combat late payments are insu�cient. With 9 out of 10 businesses experiencing at least one month of negative cash �ow a year, the issue of late payments is felt across all businesses 4. In proposing a shorter limit of UK payment terms to 60 days and eventually reducing that to 45 days, businesses will be able to control their cash �ow more accurately and efectively.

Question 11: Deadline for Disputing Invoices BALI agrees with the proposed measure to have a deadline of 30 days in which to raise a dispute on an invoice. We feel this is a reasonable timeframe in which to determine if the invoice is fair and reasonable and to raise the dispute. This will also help ensure that those that raise disputes over invoices are more genuine in their disagreement as opposed to using it as a way to elongate the payment process and pay late invoices.

Question 12: Mandatory Statutory Interest BALI somewhat agrees with the proposed change to mandate a statutory interest rate of 8% above the Bank of England base rate. This will help protect smaller businesses in particular that work with larger companies and do not have the power to change contracts favourably nor are they willing to risk their reputation to advocate for better terms. However, the lack of �exibility to come to an agreement between companies means that harsh penalties will be imposed even where two companies would be willing to come to an agreement on the late payments.

3

https://issuu.com/federationofsmallbusinesses/docs/late_payments_and_payment_methods_in_small_busines?fr=xKAE9_15JN Q 4 https://www.xero.com/content/dam/xero/pdfs/xsbi/cash-�ow-challenges-facing-small-businesses-part2.pdf

Supporting, representing, and accrediting the landscape industry Although every efort has been made to ensure accuracy, neither BALI nor the author can accept liability for errors and or omissions.

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Question 14: Persistent Late Payers BALI agrees with the proposed measure of increasing the powers of the Small Business Commissioner to give additional �nancial penalties for persistent late payers. The trigger point of 25% of payments given being late will ensure that businesses that might pay late due to other late payments within their cash�ow are not likely to be categorised as persistent late payers.

Furthermore, the ability of the Small Business Commissioner to review each company on a case-by-case basis will allow for mitigating circumstances to be recognised and establish if an additional penalty is appropriate.

Question 15: Increasing Powers of the Small Business Commissioner BALI agrees with the proposition to increase the powers of the Small Business Commissioner and give them a more active role in monitoring the health of small businesses as well as increasing investigative powers. Many small businesses are reluctant to take action on late payments due to the power imbalance when working with a bigger company, the concern over losing work, or an unwillingness to be seen as a di�cult business. Increasing the powers of the Small Business Commissioner will give small businesses an anonymous complaints method as well as an o�cial arbitration mechanism, which will protect the SMEs that raise valid concerns about unfair business practices.

Questions 17-20: Retention Clauses in Construction Contracts BALI disagrees with the proposal to prohibit the use of retention clauses in construction contracts as they can ofer valuable security for businesses when working on large construction projects. Landscaping contracts are often written into or in conjunction with construction contracts, so it is important to ensure that the knock-on impacts of changes to construction contracts is recognised.

However, BALI strongly agrees with the proposed requirements to protect the money held by retention clauses. This will ensure that the money is not held unfairly and absorbed into the cash �ow of the business which should in fact pay it back out. One BALI member has had experience of over £500,000 being held by a company for over 3 years through a retention clause. Retention clauses have the ability to protect businesses and deliver certainty on project delivery; however, they can also act as an easy mechanism to retain money which is owed to the other party. The money must be released automatically by a set date unless there is a point of contention, in which case the dispute must go to arbitration and should be handled swiftly in order to reduce �nancial burdens for both parties.

Supporting, representing, and accrediting the landscape industry Although every efort has been made to ensure accuracy, neither BALI nor the author can accept liability for errors and or omissions.

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Supporting, representing, and accrediting the landscape industry Although every efort has been made to ensure accuracy, neither BALI nor the author can accept liability for errors and or omissions.