Firms looking to win significant government contracts will have to show they pay invoices within 30 days, it has been announced.
Chancellor Jeremy Hunt said this week that in order to help small businesses, Whitehall procurement rules will be strengthened to speed up large companies’ payments to their supply chains.
From April 2024, those bidding for government contracts worth more than £5m will need to demonstrate they pay their invoices within an average of 55 days, or face being barred from jobs.
The following year the average time will be shortened to 45 days, with a 30-day period to be introduced in future.
Supply-chain payments on government jobs should already be made within 30 days, but the new rules will strengthen scrutiny of all payment times.
Whitehall has also previously said that contractors that cannot prove 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 cashflow implications of late payments, which hold small businesses back from investing and innovating. […] The government will lead by example in introducing more stringent payment-time requirements for firms bidding for large government contracts.”
Electrical Contractors’ Association (ECA) director of legal & business Rob Driscoll said he welcomed the announcement, which follows the trade body advising the Cabinet Office on the issues facing SMEs, alongside the Construction Leadership Council and other bodies.
“This is a huge achievement for ECA in levelling up the commercial environment in which our members operate. It clearly demonstrates liquidity of supply chains and cashflow are political priorities,” he said.
Driscoll is the chair of the Cabinet Office’s SME Advisory Payment Group, which has been looking at the subject.
Last month, the Department for Business and Trade said contractors would be forced to report data on their retentions as part of reforms to the law on payment-time reporting.
It also vowed to “take forward legislation to extend payment performance reporting obligations”, with new metrics set to include “a value metric, so businesses and commentators can see the value of invoices, including invoices paid late, and a disputed invoices metric”.