UK Government announces crack down on late payments to SMBs

By Gloria Methri

• A New Fair Payment Code, fresh rules on company reporting, and major consultation were unveiled as part of a package 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 brake on growth.

In a first, the UK government has announced sweeping new measures to support small businesses and the self-employed by tackling the scourge of late payments. With small businesses losing an average of £22,000 annually and 50,000 businesses facing closures each year, the need for action is imminent.

The government will consult on tough new laws that will hold larger firms accountable and get cash flowing back into businesses. In addition, the upcoming legislation will require all large enterprises to include payment reporting in their annual reports, pressing them to provide clarity about how they treat small firms. This will mean 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 the UK government portal.

Under current laws, responsible directors at 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 SMEs.

Late payments are just one element of the problem, with some SMEs forced to wait months for contracts to be fulfilled and even forced to take out loans against their own homes to manage cash flow.

Cracking down on late payments will unlock growth for 5.5 million small firms. It will enable them to invest their time in hiring more employees, boosting wages, and exporting around the world rather than chasing down late payments.

Fair Payment Code

A new Fair Payment Code has 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. The Code will also shine a light on those responsible businesses doing the right thing by their suppliers and small firms.

Addressing the matter, Prime Minister Keir Starmer said, “We are 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 peace of mind and certainty around their cash flow to keep their businesses alive. Late payments cost businesses tens of thousands of pounds and are one of the biggest reasons businesses collapse.