Crack Down on Late Payments

THE GOVERNMENT has unveiled new measures to tackle late payments which it says costs small businesses £22,000 a year on average and leads to 50,000 business closures a year.

The government will consult on new laws to hold larger firms to account.  New laws are being brought in in the coming weeks to require all large businesses to include payment reporting in their annual reports. It is hoped being forced to provide information in their annual reports about how they treat small firms will put pressure on them as company boards and international investors will be able to see how firms are operating.

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. The Federation of Small Businesses describes it as one of the biggest problems facing 5.5 million small firms.

The Business Secretary will hold a joint call with the Federation of Small Businesses (FSB) later today to outline to SME leaders the work the Department will undertake to end bad payment culture.

New proposals, subject to consultation, will be bought forward on audit and audit committees, in order to help rebuild small businesses’ trust that they will be paid on time and to deliver on Labour’s manifesto commitment to tackle late payments.

Tina McKenzie, Policy Chair at the 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 today – including the crucial steps being taken to deliver on Jonathan Reynolds’ commitment on audit committees – shows the government is rightly focused on delivery and working in partnership with the business community.”

Fair Payment Code

A new Fair Payment Code has also been announced replacing the old Prompt Payment Code, and will be open to signatories this autumn. Businesses will need to prove they have met good payment standards before being awarded official code status.

This will be designed to push businesses to pay faster more often, to be awarded either gold, silver or bronze status.

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.

The research also found that administrative errors are a major factor in creating slow payments with 24% of firms saying that invoices being incorrectly handled added to delays.

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