Commercial Payments Bill [HL]

Committee

Northern Ireland, Scottish and Welsh legislative consent sought. Relevant document: 2nd Report from the Delegated Powers Committee.

Clause 1: Payment terms

Amendment 1

1: Clause 1, page 2, line 5, at end insert— “(1A) The purchaser must advise the supplier how the supplier should submit notice as set out in subsection (1).(1B) Where the purchaser fails to advise the supplier on how to submit notice, the supplier may rely on the notice commencing by submitting a written document (for example, a delivery notice or invoice) to the person requesting the goods or services within the purchaser’s business.(1C) The purchaser must adopt internal systems that recognise that the serving of notice commences at the point the supplier complies with subsections (1A) and (1B).”Member's explanatory statement This amendment seeks to require the purchaser to give instructions as to how notice should be given. Where the purchaser gives no advice on notice, the supplier may rely on notice having been given by providing a delivery notice or invoice to the person within the purchaser’s business who is requesting the goods or services.

1: Clause 1, page 2, line 5, at end insert— “(1A) The purchaser must advise the supplier how the supplier should submit notice as set out in subsection (1).(1B) Where the purchaser fails to advise the supplier on how to submit notice, the supplier may rely on the notice commencing by submitting a written document (for example, a delivery notice or invoice) to the person requesting the goods or services within the purchaser’s business. (1C) The purchaser must adopt internal systems that recognise that the serving of notice commences at the point the supplier complies with subsections (1A) and (1B).”Member's explanatory statement This amendment seeks to require the purchaser to give instructions as to how notice should be given. Where the purchaser gives no advice on notice, the supplier may rely on notice having been given by providing a delivery notice or invoice to the person within the purchaser’s business who is requesting the goods or services.

My Lords, it is a pleasure to start this Committee on the Commercial Payments Bill. In doing so, I declare my relevant technology interests as adviser to the Crown Estate and Simmons & Simmons LLP, and as non-executive director of the Avalanche Foundation and Avalanche (BVI) Inc. The Bill is incredibly significant, particularly for a small business or microbusiness which has found itself for far too long on the wrong end of late payments.

In many ways, my Amendments 1 and 9 in this group go to the very essence of the Bill. There is much that is significant in the Bill but, largely, all of it is subsequent to that fundamental point around the 60-day and 30-day payment periods. Everything else in the Bill is largely supportive of that reality, so this first group of amendments addresses the fact that it is critically important that the Bill is absolutely precise as to when the clock starts and ends. As the Bill is currently drafted, it is not only entirely possible but an actuality for thousands of businesses that they will be told that they will receive 60-day payment terms, when in reality the payment may not arrive within 60 days, 80 days, 100 days or up to 120 days. That will still be possible if the Bill remains in its current form. There needs to be greater precision about the start point and end point of that clock.

Amendment 1 in my name addresses that start point and suggests that the purchaser has to give clarity to the supplier about how they are to give notice. This is critical because at the moment time can disappear, with an invoice or other notice being given by the supplier in good faith only for them to find themselves bounced around that often larger business—this is not necessarily because it is gaming, although sometimes that is certainly the case, but because of its multidepartmental and multipoint nature—until that 60-day clock starts. Amendment 1 addresses this and would sharpen up how that notice period has to begin. If clarity is not provided, the amendment would give clarity in that the notice can be deemed to have been given by the provider of the product by means of a recognised document that anybody in business would recognise—the obvious one being an invoice.

My Lords, I will speak to Amendment 10 in my name. Before that, I commend the noble Lord, Lord Holmes, on Amendments 1 and 9. These seem to be eminently sensible suggestions. I wonder whether, if the Small Business Commissioner makes very clear their view on when the clock starts ticking, that would make it very clear should any dispute become necessary. At the very least, there needs to be clarity from the Small Business Commissioner if these amendments are not accepted.

I thank the noble Lords, Lord Sharpe, Lord Hunt and Lord Leigh, for their support of Amendment 10. The intention of the amendment is clear. Increasingly, economic activity is switching from familiar structures and supply chains to one where businesses market their goods and services via third-party marketplaces and intermediaries, and where the subsequent payment goes back through those intermediaries. The amendment would bring such marketplaces and intermediaries into the context of the Bill by providing that payment is not treated as made to a supplier until the supplier actually receives the money, by requiring any intermediary that collects on a supplier’s behalf to pay it within seven days, regardless of how the intermediary is legally categorised.

I think this is a fair change, though I am sure that there will be resistance from the sector. The focus may well be on the time needed by the intermediary to make the payment to the vendor. A distinction may have to be made between when an intermediary has control of the goods in a warehouse and when it is purely acting as an agent. I am happy to have a discussion and debate about this, and there may be ways in which this can be dealt with. However, it would be very remiss for the legislation to leave your Lordships’ House without any provision, either primary or secondary, for the Small Business Commissioner to have or take the power to bring intermediaries into the remit of the Bill.

My Lords, I thank my noble friend Lord Holmes of Richmond for introducing this debate. I welcome all noble Lords back for what will, I am sure, be a productive Committee stage.

I shall begin with Amendment 1. I understand the principle behind my noble friend’s approach. The Bill performs a balancing act, relatively successfully, between good payment practice and regulation. In achieving the former, we have to be careful not to overstep into the latter. It is my interpretation that new Section 2B, to be inserted by Clause 1, already succeeds in ensuring that both parties to a contract are made aware of the payment terms in the four cases that are accounted for. For that reason, I am hesitant to support requiring the purchaser to give instruction on how a payment notice should be given. However, like the noble Lord, Lord Fox, I ask the Minister first to outline what the Government regard as best practice for issuing notices under the Bill, which may very well include the Small Business Commissioner making it extremely clear what they think are the right best practice terms for issuing these notices.

I am much more supportive of my noble friend’s Amendment 9, which would prohibit the increasing of a verification period after the day on which the Bill is passed. The Bill is about increasing payment efficiency; ensuring that the verification of a payment does not take longer than was previously necessary is obviously a core part of achieving that.

My Lords, first, I thank all noble Lords for their contributions to this short debate; I thank in particular the noble Lords, Lord Holmes and Lord Fox, for their Amendments 1, 9 and 10. I pay tribute to the noble Lord, Lord Holmes, for all his work in the area of AI and digital technology, which we welcome. I recognise that these amendments were tabled in a constructive spirit, seeking to ensure that suppliers are paid promptly, with which we do not disagree; to ensure that payment processes are clear; and to ensure that purchasers cannot use contractual mechanisms to delay payment unjustly. Those are their aims, which the Government share.

Amendment 10 would create a new legal requirement for intermediaries, including online marketplaces, to send payments to a supplier within certain time limits. I understand the concern underlying the amendment. Where a small business sells through a platform or marketplace, it is important that the money due to that business is not held unnecessarily. However, that is neither the purpose nor the structure of the Bill. The Bill focuses on late payments under commercial contracts for the supply of goods and services. It strengthens the consequences that arise where qualifying commercial debt has been created and where payment is overdue. It sets clear limits on payment terms between suppliers and purchasers, and strengthens the framework for interest enforcement and accountability. Those protections already apply where there is a relevant commercial contract between a supplier and a purchaser, including where the supplier is ultimately paid via an intermediary.

As part of the late payments consultation, we asked businesses whether the trigger events under the Late Payment of Commercial Debts (Interest) Act 1998 are still appropriate. Businesses told us that those triggers should be kept. They did not identify a material problem with clarity of service of notices. Clause 1 therefore provides that a payment period can begin on the day on which the purchaser has notice of the amount of the payment. The Government’s view is that this formulation is clear, familiar and practical for business. In developing this Bill, our intention is not to limit all the ways in which a business can provide a notice to pay, as businesses often have their own systems and relationships with suppliers. We do not want to impose requirements on purchasers or suppliers regarding the specific systems or forms of notices that should be adopted, or to suggest which of the parties should have the power to determine what form that notice should take. Businesses should be open to determining the systems that they have in place for themselves. For that reason, I do not consider Amendment 1 to be necessary.

On Amendment 9, I fully understand that the noble Lord, Lord Holmes, wishes to protect suppliers from unnecessary and unwarranted contractual changes, especially where the only effect of those changes is to provide the buyer with longer verification. The Government agree that suppliers should be paid on time for goods and services that are supplied properly. Verification must not be used as a means of postponing payment. However, acceptance and verification procedures are recognised and legitimate features of many commercial contracts. They allow a purchaser to verify that the goods or services supplied meet the agreed contractual requirements before payment falls due. In many cases, that process will be straightforward and brief. In others, it may legitimately take longer. There are sectors where more detailed verification is essential and required. Safety-critical products and complex services may require careful inspection, testing or certification—one can think of shipbuilding, aerospace components, jet engines, specialist machinery, infrastructure equipment or other technically complex products. In those circumstances, a purchaser may need a longer period to confirm that the supplied goods are safe, compliant and fit for purpose.

The Bill therefore strikes a careful balance. Unless the parties agree otherwise, the verification period is deemed to be completed by the end of 30 days from the relevant trigger point. If a purchaser wishes to agree a verification period of longer than 30 days, the longer period must be fair and reasonable. That is an important safeguard. It prevents purchasers imposing unjustified verification delays while still allowing longer periods where they can be properly justified by the nature of the goods, services or sector involved.

The Bill therefore strikes a careful balance. Unless the parties agree otherwise, the verification period is deemed to be completed by the end of 30 days from the relevant trigger point. If a purchaser wishes to agree a verification period of longer than 30 days, the longer period must be fair and reasonable. That is an important safeguard. It prevents purchasers imposing unjustified verification delays while still allowing longer periods where they can be properly justified by the nature of the goods, services or sector involved.

The difficulty with Amendment 9 is that it would impose a broad restriction on extending verification periods when contracts are updated or replaced, even where such an extension is fair, reasonable and commercially necessary. That could have unintended consequences. It would discourage purchasers from buying new, complex or innovative products if they cannot secure an adequate verification period. It would also create difficulties in sectors where product development, safety assurance and technical testing requirements evolve over time. The Government’s approach is therefore to protect suppliers from unreasonable delays without impeding the legitimate verification arrangements. The Bill already achieves that balance. I therefore ask that Amendment 1 be withdrawn.

My Lords, I thank all noble Lords who have taken part in this debate and the Minister for his response. Amendment 1 is not seeking to be overly prescriptive but merely to be clear. While I understand the Minister’s points, there is still a gap in the middle with the provisions if Amendment 1 or Amendment 9 are not accepted, with possibly too much space where the purposes and provisions that the Bill seeks to achieve may not come to pass. However, for the time being, I beg leave to withdraw Amendment 1.