New measures have been unveiled which aim to tackle late payments to small businesses.
The UK Government said it would consult on tough new laws which will hold larger firms to account. It also said that new legislation being brought in the coming weeks would require all large businesses to include payment reporting in their annual reports – putting the onus on them to provide clarity in their annual reports about how they treat small firms.
Enforcement will also be stepped up on the existing late payment performance reporting regulations which require large companies to report their payment performance twice yearly on GOV.UK.
Under current laws, responsible directors at non-compliant companies who don’t report their payment practices could face criminal prosecutions including potentially unlimited fines and criminal records.
The consultation which will be launched in the coming months, will also consider a range of further policy measures that could help address poor payment practices.
Every quarter, 52% of small firms in the UK suffer from late payments, meaning roughly 2.6 million small firms face this issue, with the Federation of Small Businesses describing it as one of the biggest problems facing SMEs.
Small Business Minister Gareth Thomas said:
“Small businesses deserve to be paid on time, it’s as simple as that. I’m optimistic that today’s first big step will help pave the way for real change that supports SMEs to thrive and help to grow our economy.”
New research published by the Department for Business and Trade has found payment problems multiply the further down the supply chain you go. With delays to payments increasing with each business along a supply chain, this results in smaller businesses generally experiencing more issues with late invoices than larger firms.
Tina McKenzie, Policy Chair at the Federation of Small Businesses (FSB), said:
“The Business Secretary has clearly recognised the importance of eradicating bad payment culture, which so devastates the UK supplier base and holds back growth. This series of actions – including the crucial steps being taken to deliver on Business Secretary Jonathan Reynolds’ commitment on audit committees – shows the Government is rightly focused on delivery and working in partnership with the business community.
“There will be so many decisions the Government needs to get right, early – an actively pro-small business budget, a good industrial strategy and tackling late payment. Announcing this programme of work today is a huge confidence boost for the small business community and a clear signal the new Government intends to stand up for small firms.”
The Small Business Commissioner, Liz Barclay, said:
“I am delighted to announce a new Fair Payment Code will be launched this autumn. The new code will reward businesses that treat their suppliers fairly and pay them quickly. It will also include an ambitious new Gold Award which aims to make 30-day payments the new standard for which businesses can aim.
“We need sustainable, resilient businesses at all levels of the supply chains, to achieve the growth the economy needs. That means paying everyone from the largest supplier to the sole trader quicker, so they have the confidence to invest, improve productivity and grow. Fair payment terms and on time payments are the key.”
Steve Hare, CEO of Sage, said:
“Late payments continue to challenge small and medium-sized businesses, affecting cash flow and growth. The UK Government’s new measures are all positive and show a strong commitment to addressing this issue. We must also focus on technological solutions. E-invoicing, for instance, already used in other countries, reduces late payments by 20% and processing times by 44%, saving small companies an average of £11,300 annually.”
Terry Corby, Founder & CEO of campaign group Good Business Pays said:
“On the same day that Good Business Pays published our Autumn 2024 Watchlist of Late & Slow Paying companies, it’s encouraging to see these new late payment measures being announced.
“Only reputational pressure from organisations like Good Business Pays, supported with appropriate legislation and enforcement from government, will force a change in late payment behaviour. These new measures announced today will go some way to help drive that culture change.”
Glenn Collins, head of technical and strategic engagement at ACCA, said:
“We are pleased to see this move by the Government today. ACCA has been a consistent and vocal supporter of the need to ensure small businesses are paid on time and have clear knowledge of the payment practices of who they are doing business with. It is a great first step but there will be more work to do. We look forward to participating in the consultation on the proposed new laws.
“Late payment and unfair practices continues to blight small businesses across the UK. We have long called for urgent implementation of proposed improvements to tackle late payment problems, including expansion of prompt payment reporting and the proposed expansion of powers for the Small Business Commissioner (SBC). We are glad that some initiatives are now being taken.”
Lloyd Powell, head of ACCA Cymru/Wales, added:
“Small businesses account for more than 99% of businesses in Wales. It is vital that they are able to get paid on time, as cashflow drying up can be a serious problem for them, more so than larger businesses.
“We are pleased that the SBC has been given extra powers to tackle some of the defaulters under the old code, however we will be calling for additional reforms to provide more transparency in this area.
“Clearly this is voluntary, but we urge Welsh businesses across the supply chain to see how they can sign up to this enhanced code and work together to eradicate the scourge of late payment.”
