Building a responsible payment culture

Earlier this year, the UK Government issued its response to an industry consultation on establishing a ‘responsible payment culture’.

The prevalence of ‘pay when paid’ clauses in contracts has long been a bug-bear for the recruitment industry.  The agent could be required to pay the worker on a weekly cycle, despite not being paid by the client until 60 days after the invoice is issued – or worse, if the client becomes insolvent, never.  The risk, therefore, lies squarely on the agent, and not on the real user of the worker. As a result, the agent becomes an unofficial banker to the end user.

So, what has the Government proposed? Despite recognising that extended payment terms are a problem for many businesses, the Government has decided not to introduce a legally enforceable maximum payment term.  The Government is seeking to work with trade and sector bodies to improve payment timing, but will not be imposing legally enforceable limits.

One other key area of concern to the employment agency sector is invoice financing. The consultation considered whether removing contractual barriers to selling invoices (e.g. as a result of a ban on assignment) would be helpful to small businesses by increasing their access to services such as factoring and invoice finance. The Government’s response to such contractual restrictions recognised the removal of such barriers ought to help increase access to invoice financing options for this sector. As a result of the consultation, the Government has stated that it does “therefore intend to introduce legislation to tackle contractual barriers such as bans on assignment when Parliamentary time permits.” Whether the time will be found soon remains to be seen, but it does show that responding to consultations, and working as a sector group, can influence how governments operate.

For more information, please contact Adam Rose

Click here to find out about Mishcon de Reya’s Recruitment Services Group.

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