Late Payments: New Government Initiatives for SMEs
The UK government has introduced a series of new initiatives to tackle late payments, a major challenge for small businesses and the self-employed. According to the Smart Data Foundry, delayed payments cost small and medium-sized enterprises (SMEs) an average of £22,000 per year. Research from the Federation of Small Businesses (FSB) estimates that these late payments result in around 50,000 business closures annually.
The government is now planning to consult on tough new laws aimed at holding larger firms accountable for their payment practices and ensuring cash flow back into smaller businesses. These measures align with the government’s broader goal to stimulate economic growth, particularly through supporting the small business sector.
One of the main proposals to be introduced in the coming weeks is a new legal requirement for large companies to include payment reporting in their annual reports. This measure is designed to increase transparency, enabling company boards, investors, and the public to assess how well larger companies treat their smaller suppliers. This will add further scrutiny and pressure on businesses to improve their payment practices.
In addition to this, the government is stepping up enforcement of existing regulations on late payment reporting. Currently, large businesses are required to submit their payment performance twice a year on the government’s website, GOV.UK. Under existing laws, directors of companies that fail to comply with these reporting requirements could face criminal charges, including unlimited fines and criminal records.
The consultation process, set to launch in the coming months, will explore a range of additional policy measures to address late payment issues. The aim is to ensure that any new laws effectively address the problem while balancing the burden on businesses. The consultation will engage with key business organisations, including the Federation of Small Business (FSB) and Enterprise Nation, to gather insights and recommendations from across the business community.
FSB research highlights the scale of the problem: in 2022, 52% of SMEs in the UK reported suffering from late payments, affecting roughly 2.8 million businesses. The FSB has described late payments as one of the most significant issues facing small businesses today. Many small businesses are forced to wait months for contracts to be fulfilled, while some are pushed to the brink of financial collapse, even having to take out personal loans to manage cash flow.
The government believes that cracking down on late payments will unlock significant growth potential for the UK’s 5.5 million small businesses. By freeing up cash flow, these businesses will be able to focus more on hiring staff, increasing wages, and
expanding into new markets, rather than wasting time and resources chasing unpaid invoices.
Business Secretary Jonathan Reynolds is scheduled to hold a joint call with FSB leaders to discuss the new measures and outline the government's commitment to implementing strict laws to end the culture of late payments.
As part of the effort to tackle late payments, the government has also announced a new "Fair Payment Code," which will replace the existing Prompt Payment Code. The new code, set to launch this autumn, will encourage businesses to adopt faster payment practices. Companies that meet the required standards will be awarded gold, silver, or bronze status, depending on how quickly and consistently they pay their suppliers. This tiered system aims to shine a spotlight on responsible businesses while encouraging others to improve their payment practices.
Both the Business Secretary and Small Business Minister Gareth Thomas will be engaging with small business owners to discuss the full range of support measures being introduced.
New research from the Department for Business and Trade reinforces the need for immediate action. It has been found that payment delays worsen further down the supply chain, with smaller businesses experiencing more issues with late payments than larger firms.
Source: Gov.uk
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