The government has announced a new package of measures to support small businesses and the self-employed by tackling a scourge of late payments.
With figures showing the issue is costing small businesses £22,000 a year on average and leads to 50,000 business closures a year, the government has said it will consult on new tough new laws to hold larger firms to account and get cash flowing back into businesses.
In addition, new legislation being brought in the coming weeks will require all large businesses to include payment reporting in their annual reports – putting the onus on them to provide clarity in their annual reports 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 GOV.UK.
Under current laws, responsible directors at non-compliant 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.
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.”
A new Fair Payment Code has been announced 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.
Tina McKenzie, Policy Chair at the Federation of Small Businesses, described the programme as a “huge confidence boost for the small business community”.
She added: “This is what real change looks like. Listening to small firms and prioritising action to tear down each and every barrier to growth.”
The government has said that cracking down on late payments will unlock growth for 5.5 million small firms by enabling them to invest their time hiring more employees, boosting wages, and exporting around the world, rather than chasing down late payments.
Every quarter, 52 per cent of small firms in the UK suffer from late payments, meaning roughly 2.6 million small firms face the issue.
