Government announces 'crackdown' on tackling late payment for small businesses
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Posted: Thu 19th Sep 2024
The government has announced new measures aimed at tackling the huge problem of late payment of invoices suffered by small businesses.
Bills not being paid on time has long been an issue for the UK's entrepreneurs with research showing that small businesses are owed £22,000 a year on average resulting in 50,000 annual company closures.
The results of Enterprise Nation's latest quarterly Small Business Barometer found that 23% of small firms are often paid late, while a new study by the Department for Business and Trade (DBT) found payment problems multiply the further down the supply chain you go, resulting in smaller businesses experiencing more issues with late invoices than larger firms.
The DBT research also found that administrative errors are a key driver of slow payments, with 24% of firms saying that invoices being incorrectly handled added to delays.
Tackling late payment
To take on the problem, the government will introduce new legislation that requires all large businesses to include payment practices in their annual reports, and the Prompt Payment Code, through which large firms commit to pay 95% of their invoices to small businesses within 30 days, will be replaced with new Fair Payment Code.
Open to signatories later this year, businesses will need to prove they have met good payment standards, and the following new award categories will be introduced:
Gold: For companies paying 95% of their suppliers within 30 days.
Silver: For companies paying 95% of their small business suppliers within 30 days and all other suppliers within 60 days.
Bronze: For companies paying 95% of suppliers within 60 days.
Another measure is stepped up enforcement on existing late payment performance reporting regulations which require large companies to report their payment performance twice yearly on the government website.
Under current laws, directors at companies who don't report their payment practices could face criminal prosecutions including unlimited fines and criminal records.
Finally, the government will consult on "tough" new regulations around audit and audit committees to "hold larger firms to account" and get cash flowing back into businesses".
To outline the government's approach to late payment, business secretary Jonathan Reynolds will today meet business groups including Enterprise Nation, and speak to small business owners who have suffered from slow payments including Enterprise Nation member and fashion entrepreneur Scott Shashua, founder of The Couture Club.
Enterprise Nation has long campaigned on the issue and called for measures to tackle late payment, including contributing to a review by the previous Conserative government, and making suggestions in our manifesto for the new government.
Prime minister 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.
"After years of delay, we're bringing forward measures that small businesses have long been calling for to tackle late payments once and for all."
Business secretary Jonathan Reynolds added:
"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.
"Slashing trade barriers, reforming business rates, getting more SMEs exporting, this government is committed to small firms. We know there's a lot more to be done, but today we are calling time on late payers once and for all."
Small Business Commissioner Liz Barclay, a role set up by the government to help small businesses deal with late invoices, commented:
"I am delighted to announce a new Fair Payment Code will be launched this autumn. The new code will reward businesses that treat their suppliers fairly and pay them quickly. It will also include an ambitious new Gold Award which aims to make 30-day payments the new standard for which businesses can aim.
"We need sustainable, resilient businesses at all levels of the supply chains, to achieve the growth the economy needs. That means paying everyone from the largest supplier to the sole trader quicker, so they have the confidence to invest, improve productivity and grow. Fair payment terms and on time payments are the key."
Enterprise Nation's reaction
Daniel Woolf, head of policy and government relations at Enterprise Nation, said:
"We welcome the government's announcement to consult on tough new laws to clamp down on the scourge of late payment. This issue has been a continuous blight for small business owners, and Enterprise Nation has long campaigned for robust measures to address it. Our Small Business Barometer found that 23% of small businesses are still often paid late for their goods and services, highlighting the urgent need for action.
"The proposed measures, including mandatory payment reporting in annual reports and stepped-up enforcement, are encouraging steps towards fostering a fairer business environment.
"We're ready to engage with the government constructively as part of this consultation to help ensure that it results in effective measures to tackle late payment. But we would also caution that these efforts must lead to real change and not just another review, enabling small businesses to focus on growth and innovation rather than chasing overdue invoices."
The impact of late payment on small businesses
We spoke to 10 Enterprise Nation members about the impact of late payment and to share their tips for tackling it.
Business consultant Becky Stevenson said:
"Over the last year, I have been owed thousands of pounds (some of which is still outstanding), which has impacted my business, family life and mental health."
Deepak Tailor said:
"We work with a mixture of small and large businesses on an agency model. We have to constantly deal with late payments.
"There has been an increase in the number of late payments over the last few years and definitely during the economic downturn. This has been caused by lots of companies struggling with supply chains which has a knock-on effect for paying publishers like us."
Small business advice for dealing with late payment
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