A new complaints scheme designed to tackle late payment in business to business contracts will likely be available from 1 October 2017 according to a BEIS report. The scheme will be of particular interest to small businesses and their larger business customers.

The UK Government is currently in the process of appointing a Small Business Commissioner ("SBC") to administer the scheme (details here). The SBC will handle complaints from small businesses regarding payment issues with larger businesses and, following the determination of a complaint, the SBC will have the ability to "name and shame" large businesses that have not followed fair and reasonable payment practices.

Updated draft regulations ("SBC Regulations") published on 22 July 2017 detail the scope and process of the SBC complaints scheme, which will operate separately from the payment reporting duty imposed on larger business from 6 April 2017 (requiring qualifying large businesses to publish information about their payment practices twice a year on a central government website). We recently blogged on the payment reporting duty here and here and further government guidance can be found here.

The SBC complaints scheme and payment reporting duty form part of the government's efforts to reduce late payment debt owed to SMEs, which was reported as totalling £26.3 billion as of December 2016.

Complaints within the remit of the SBC complaints scheme

The SBC will consider complaints about payment in a broad sense (i.e. any acts and omissions in relation to payment). For example, a small business can complain if the larger business requests a new fee or seeks to alter an agreed fee or price. However, certain matters are outwith the remit of the scheme, including whether a price or fee for goods or services is appropriate and issues currently subject to legal proceedings.

The scheme will cover matters occurring on or after 6 April 2017 and a complaint must ordinarily be submitted to the SBC within 12 months from the date on which the matter to which the complaint relates took place.

Who is Eligible to complain under the SBC complaints scheme?

In summary, to be eligible to make use of the complaints process, a business must:

  • Have a staff headcount of fewer than 50 people (see the SBC Regulations for more detail on calculating staff headcount);
  • Have its registered office or principal place of business in the UK; and
  • Not be a public authority.

Before submitting a written complaint to the SBC, the small business must first raise the complaint with the larger business to afford the larger business a reasonable opportunity to resolve it. There is an exception to this general rule where proceeding in this manner would have a significant detrimental effect on the commercial interests of the small business.

How is the complaint assessed by the SBC?

The SBC evaluates whether the acts or omissions complained of were "fair and reasonable" in the circumstances. In determining this, the SBC must take into account (among other things) the conduct and relative bargaining positions of the parties. The SBC must also give the respondent an opportunity to make representations and can ask (but not require) either party to submit information or documents relevant to the complaint.

What are the possible outcomes of a complaint?

Once the SBC determines a complaint, the SBC must give a written statement to both parties setting out the reasons for the decision and any further recommendations. The SBC may then (at the SBC's discretion) publish a report on the complaint and include (or opt not to include) the name of the respondent in that report.

Before publishing such a report, the SBC must allow the complainant and respondent to make representations about the proposal to publish the report and whether or not the report should name the respondent.

In considering whether to name the respondent, the SBC must take certain factors into account, including (but not limited to) whether the respondent engaged positively with the complaints process, whether the respondent used any undue influence in its dealings with the complainant or any third party, and whether the respondent has acted or not acted on previous recommendations made by the SBC.

How will the SBC complaints scheme impact businesses?

Although the SBC's findings are not legally binding, from 1 October 2017 qualifying small businesses will have an additional process at their disposal to encourage on-time payment. Larger businesses should review the SBC Regulations in advance of this date to ensure they are familiar with the process and ready to deal with any SBC complaints in a timeous manner.

Small businesses should also take note as the new regulations provide them with additional means for ensuring on-time payment by larger business customers.

More background information can be found in our previous blog here.

Source: The Small Business Commissioner (Scope and Scheme) Regulations 2017 and Enterprise Act 2016 (Explanatory Notes)