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The government is to consult on new legislation to address late payments to small businesses, which costs SMEs £22,000 a year and a combined 56 million hours in lost productivity.
A new Fair Payment Code and fresh rules on company reporting are among proposals to hold larger firms to account and get cash flowing back into small businesses. New legislation being brought in the coming weeks will 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 suppliers.
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. Responsible directors at non-compliant companies who do not report payment practices could face criminal prosecutions and potentially unlimited fines.
Prime Minister Sir Keir Starmer said:
“We’re determined to back small businesses by unlocking their barriers to growth, and stamping out late payments is at the heart of this.
“We know how important it is for business owners to have the peace of mind and certainty around their cashflow to keep their businesses alive. Late payments cost businesses tens of thousands of pounds and is one of the biggest reasons businesses collapse.“
Business Secretary Jonathan Reynolds said:
“Late payments are simply unacceptable and this government is determined to level the playing field for small business. When the cashflow runs dry, small firms go under which is why we need to hold larger business to account with their payment practices and foster an environment that supports growth and jobs.“
A new Fair Payment Code has also been announced that will replace the old Prompt Payment Code, and open to signatories this autumn. Businesses will need to prove they have met good payment standards before being awarded official code status.
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.
Findings underpin the need to move quickly to crack down on late payments. The research also found that there was a clear imbalance between big and small firms, and that administrative errors are a major factor in creating slow payments with 24% of firms saying that invoices being incorrectly handled added to delays.
The government will work closely with small and large businesses as well as groups such as FSB and Enterprise Nation to discuss what further measures can be considered to crack down on late payments
