Exposure of late paying clients touches on ‘pay when paid’ clauses

From April 2017, a large number of companies may be required to report quarterly on their supplier payment practices. The aim of the draft regulations is to identify those companies who may be clogging up the supply chain and causing cash flow problems for the suppliers they contract with. As it stands, the regulations currently exclude certain companies. The extent of these exclusions will not be clear until the final version of the regulations is published.

Under the regulations, introduced by the Small Business, Enterprise and Employment Act 2015, companies will be obliged to provide information on the length of any standard period for payment; the average period for payment; and the maximum period for payment.This will also include the average number of days within which invoices were paid and the percentage of invoices which were not paid within their period for payment.

Recruiters are often caught in the position where they are legally obliged to pay the worker (due to the Conduct of Employment Agencies and Employment Businesses Regulations 2003) but are yet to receive payment from further up the supply chain due to a delay or ‘pay when paid’ clauses, and as a result it is encouraging to see legislation that may attempt to tackle this. 

Ben Grover, Senior Lawspeed Consultant commented “Although the regulations are far from a panacea for recruitment businesses, legislation that aims to tackle cash flow issues by highlighting those companies that are not paying suppliers in a timely manner is certainly a step in the right direction. 

This development is encouraging but until this issue is fully resolved it is important that recruiters take steps to protect themselves within the supply chain and have in place strong contractual terms to safeguard their interests.”

Lawspeed can assist you by advising on client contract requirements and contracts with suppliers and contractors. Call us on 01273 236 236 for more information.