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Business groups will be able to seek legal action on behalf of its members for late payments under new legislation introduced in the wake of the Carillion scandal, as reported by The Times.

The liquidation of the UK’s second largest construction company, Carillion, highlighted that contractors and small businesses were expected to wait more than 120 days to receive payment.

The new rules will mean that trade bodies will be able to seek injunctions for contractors who are paid late by private companies or state departments.

The government statethat when a payment becomes late,

You can claim interest and debt recovery costs if another business is late paying for goods or a service.

If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either:

  • the customer gets the invoice
  • you deliver the goods or provide the service (if this is later)

You can agree a longer period for payments from one business to another – but if it’s longer than 60 days it must be fair to both businesses.

The news comes after the government estimated that the economy would be boosted by £2.5bn if contractors were actually paid on time.

OpenOpps which is a database displaying public contracts has estimated that 30,000 small businesses are owned money due to the collapse of Carillion, and an additional 450 contracts with 208 different public sector bodies require renegotiation, as told to Contractor UK.

As a contractor or freelancer, it can be difficult to chase late payments, but the appointment of Paul Uppal, Small Business Commissioner is also expected to assist smaller businesses in dispute resolution with larger businesses, including late payment.

To ensure that there are no hiccups during the payment process, enforce strict payment terms, such as a fee for late payment. When producing your invoice, include a breakdown of your provided service and payment information. Thirdly, if the client is a repeat offender, it could be worth considering legal action.

Gorilla Accounting is a specialist accountancy firm, exclusively for Contractors and Freelancers operating through a Limited Company or Umbrella Solution.If you would like more information, get in touch with our New Business Team by calling 0330 024 0406 or email info@gorillaaccounting.com.

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