UK government announces crackdown on SME late payments

By Gloria Methri

• A new fair payment code, new rules on business reporting and a major consultation have been unveiled as part of a package of measures to tackle late payments.
• The scourge of late payments costs SMEs £22,000 a year and causes 56 million hours of lost productivity across the economy, acting as a major drag on growth.

The UK government has announced for the first time radical new measures to support small businesses and the self-employed by tackling the scourge of late payments. Small businesses are losing on average £22,000 per year and 50,000 businesses face closures every year, the need for action is imminent.

Government to consult on strict measures new laws This will hold big companies to account and put money back into businesses. In addition, the upcoming legislation will require all large companies to include information about payments in their annual reports, forcing them to clarify how they treat small businesses. This means that company boards and international investors will be able to see how companies operate.

Enforcement of existing late payment performance reporting regulations, which require large businesses to report their payment performance twice a year on the UK government portal, will also be strengthened.

Under current laws, executives responsible for companies that fail to report their payment practices could face criminal prosecution, including potentially unlimited fines and criminal records.

The consultation, which will be launched in the coming months, will also consider a range of additional policy measures that could help tackle poor payment practices.

Every quarter, 52% of small businesses in the UK face late payments, meaning around 2.6 million small businesses are facing this problem. The Federation of Small Businesses describes it as one of the biggest problems facing SMEs.

Late payments are just part of the problem: some SMEs are forced to wait months for contracts to be honoured and even take out loans on their own homes to manage their cash flow.

Tackling late payments will help boost growth for 5.5 million small businesses, allowing them to invest their time in hiring new employees, increasing wages and exporting around the world rather than chasing late payers.

Fair Payment Code

A new Fair Payments Code has been announced, replacing the old Fast Payments Code, and will be open to signatories this autumn. Businesses will need to prove they meet the payment standards before being granted official code status.

The code aims to encourage businesses to pay faster and more often, to achieve gold, silver or bronze status. It will also highlight responsible businesses that act in the interests of their suppliers and small businesses.

Addressing the issue, Prime Minister Keir Starmer “We are committed to supporting small businesses by removing barriers to growth, and eliminating late payments is at the heart of this. We know how important it is for business owners to have peace of mind and certainty about their cash flow to keep their business alive. Late payments cost businesses tens of thousands of pounds and are one of the main reasons they fail.”