The UK government is set to introduce stringent measures to combat late payments by large companies to small businesses.
- Delayed payments cause small businesses an average annual loss of £22,000, prompting government intervention.
- A consultation is underway to explore new laws that increase transparency and accountability for large firms.
- Past efforts to address late payments have seen limited success, necessitating more robust actions.
- The new measures include legal reforms and potential criminal prosecution for non-compliance.
On average, delayed payments result in an annual cost of £22,000 to small businesses, as highlighted by research from the Department for Business & Trade (DBT) and the Federation of Small Businesses. The significant financial burden on small enterprises has catalyzed the government to launch a consultation aimed at formulating ‘tough’ new laws to hold large companies accountable for late payments. These laws will require large firms to demonstrate greater transparency in their payment practices.
The proposed regulations mandate large firms to disclose payment data in their annual reports. This measure is intended to facilitate closer scrutiny of their payment interactions with smaller suppliers, improving accountability. The intended reforms follow the introduction of the ‘duty to report’ legislation in 2017, which achieved only minimal success in changing corporate payment behavior.
A study by the Chartered Institute of Procurement & Supply reveals a marginal improvement in the payment behavior of large firms over the past five years, indicating widespread non-compliance with existing guidelines. This persistent issue underscores the need for more stringent measures.
Prime Minister Sir Keir Starmer stressed that resolving late payments is pivotal to the government’s strategy for small business growth. ‘Late payments cost businesses tens of thousands of pounds and are one of the biggest reasons for business failure. We are finally bringing forward the measures that small businesses have been calling for,’ he stated.
Business Secretary Jonathan Reynolds described late payments as ‘simply unacceptable’ and emphasized the need to hold larger firms accountable. As part of the government’s enhanced enforcement efforts, companies failing to report their payment performance could face legal action, including criminal prosecution and unlimited fines.
A novel fair payment code is set to be introduced, categorizing businesses on a gold, silver, or bronze status according to their payment standards. This initiative aims to incentivize companies to adhere to more ethical payment practices, fostering a culture of timely settlements.
These comprehensive initiatives mark a decisive step forward in supporting small businesses against the detrimental effects of delayed payments.
