The UK government has introduced a new suite of measures designed to address the pervasive issue of late payments affecting small businesses. This initiative, which includes a revamped Fair Payment Code, stringent reporting regulations, and a comprehensive consultation process, aims to alleviate the financial strain caused by delayed payments.
New Measures to Address Late Payments
The latest government package targets the persistent problem of late payments that costs small businesses an average of £22,000 annually, contributing to approximately 50,000 business closures each year. This significant issue is also responsible for 56 million hours of lost productivity across the economy, stifling growth and economic potential.
To tackle this, the government will initiate a consultation on new, stricter laws that will hold larger firms accountable for their payment practices. Additionally, upcoming legislation will mandate that all large businesses include detailed payment performance reports in their annual disclosures. This transparency will allow company boards and international investors to scrutinize the payment practices of large firms.
Enforcement of existing regulations will also be intensified. Under current laws, directors of non-compliant companies who fail to report payment practices face severe consequences, including potential criminal prosecution, unlimited fines, and criminal records.
Consultation and Legislative Changes
The government is set to launch a consultation in the coming months to explore further policy measures aimed at improving payment practices. This consultation will seek input on various strategies to address the issues of late payments comprehensively.
Currently, 52% of small businesses in the UK face challenges with late payments each quarter, affecting approximately 2.6 million small enterprises. The Federation of Small Businesses (FSB) has highlighted late payments as a critical issue, which often forces SMEs to endure lengthy delays in contract fulfillment and, in some cases, take out loans against personal assets to maintain cash flow.
Government and Industry Responses
Business Secretary Jonathan Reynolds will visit food and drink businesses in Manchester struggling with late payments. Later today, Reynolds will join the Federation of Small Businesses to discuss the new legislative measures and outline the steps the Department for Business and Trade will take to eradicate the culture of late payments.
Prime Minister Keir Starmer emphasized the importance of providing business owners with the financial certainty necessary to sustain and grow their enterprises. He asserted that the new measures are a long-awaited response to the persistent issue of late payments, which significantly contribute to business failures.
Business Secretary Jonathan Reynolds underscored the government’s commitment to creating a level playing field for small businesses, stressing that timely payments are essential for sustaining growth and job creation. He highlighted ongoing efforts to reduce trade barriers, reform business rates, and promote SME exports.
Introduction of the Fair Payment Code
The government has also announced a new Fair Payment Code, set to replace the existing Prompt Payment Code. The updated code will be open for signatories this autumn, and businesses must demonstrate adherence to good payment practices to receive official recognition. The code will feature a tiered status system—gold, silver, and bronze—to encourage faster payments and recognize those businesses that uphold high standards.
Small Business Minister Gareth Thomas expressed optimism about the new measures, asserting that they represent a crucial first step toward significant change that will support SMEs and drive economic growth.
Research and Future Initiatives
Recent research by the Department for Business and Trade reveals that payment delays increase as businesses move further down the supply chain, with smaller firms bearing the brunt of these issues. The research also indicates that administrative errors contribute significantly to payment delays.
The government plans to collaborate with both small and large businesses, as well as organizations such as FSB and Enterprise Nation, to discuss additional measures to combat late payments while avoiding undue burdens on businesses.
Industry Reactions
Tina McKenzie, Policy Chair at the FSB, commended the government for prioritizing action against late payments, noting that the measures announced today signal a strong commitment to supporting small businesses.
Small Business Commissioner Liz Barclay welcomed the introduction of the new Fair Payment Code, emphasizing its role in ensuring that businesses are rewarded for fair payment practices.
Industry leaders, including Steve Hare, CEO of Sage, and Oliver Lloyd-Taylor, Founder of Black Milk, voiced support for the new measures. They highlighted the impact of late payments on cash flow and operational efficiency, and welcomed the government’s commitment to addressing these challenges.
Terry Corby, Founder & CEO of Good Business Pays, expressed encouragement at the government’s new measures, noting that while reputational pressure from organizations like Good Business Pays plays a role, effective legislation and enforcement are crucial to driving cultural change in payment practices.
This comprehensive approach by the government aims to tackle the root causes of late payments and foster a more supportive environment for small businesses, thereby enhancing economic growth and sustainability.
