New measures unveiled to address the pressing issue of late payments
The government has announced a comprehensive package of measures aimed at tackling the rampant issue of late payments that plague small businesses across the UK. This initiative aims to alleviate the financial strain on small and medium-sized enterprises (SMEs), which currently lose an average of £22,000 annually due to late payments, leading to around 50,000 business closures each year.
A New Era of Fair Payments
The proposed measures introduce a new Fair Payment Code, set to replace the current Prompt Payment Code. This updated framework aims to establish clear standards for timely payments, with businesses required to prove their adherence to these standards to gain official recognition. The code will categorise signatories into gold, silver, or bronze status based on their payment practices, encouraging a shift towards faster payments.
Business Secretary Jonathan Reynolds highlighted the urgency of the situation, stating, “Late payments are simply unacceptable, and this government is determined to level the playing field for small businesses. When cash flow runs dry, small firms go under. That’s why we need to hold larger businesses accountable for their payment practices.”
Mandatory Payment Reporting for Large Firms
In addition to the Fair Payment Code, the government will introduce legislation requiring all large businesses to include payment reporting in their annual reports. This move will ensure that company boards and international investors can assess how large firms treat their small suppliers. This transparency is vital for fostering a culture of accountability within the corporate sector.
Existing late payment performance regulations will be enforced more rigorously, requiring large companies to report their payment practices twice a year on GOV.UK. Failure to comply could result in criminal prosecutions for responsible directors, including potentially unlimited fines and criminal records.
Consultation for Further Measures
A consultation will be launched in the coming months to explore additional policy measures to address poor payment practices. The government seeks to understand the challenges faced by SMEs and the specific obstacles that lead to delayed payments. Recent research indicates that 52% of small firms in the UK suffer from late payments, translating to approximately 2.6 million businesses facing cash flow challenges.
Supporting Growth Through Timely Payments
Prime Minister Keir Starmer emphasised the importance of addressing late payments for the survival and growth of small businesses. ” We are committed to supporting small businesses by removing barriers to their growth. Late payments can cost businesses tens of thousands of pounds and are among the leading causes of business failures,” he stated.
The proposed measures aim to unlock growth potential for the 5.5 million small firms in the UK, enabling them to invest in hiring more employees, increasing wages, and expanding their operations instead of chasing overdue payments.
Collaboration with Stakeholders
The government will collaborate closely with organisations such as the Federation of Small Businesses (FSB) and Enterprise Nation to ensure the new measures effectively balance the needs of businesses while avoiding excessive burdens. Tina McKenzie, Policy Chair at FSB, praised the government’s commitment, stating, “This series of actions shows that the Government is rightly focused on delivery and working in partnership with the business community.”
The government’s latest initiative represents a significant step forward in combating late payments and supporting the growth of small businesses across the UK. By fostering a culture of fair payment practices and ensuring accountability among larger firms, the government aims to create a more conducive environment for SMEs to thrive.