The UK government is about to introduce new measures aimed at tackling late payments from big companies to small businesses, a problem that contributes to the collapse of 50,000 small and medium-sized businesses every year.
Research from the Department for Business & Trade (DBT) and the Federation of Small Businesses shows that delayed payments cost small businesses an average of £22,000 a year.
A consultation has been launched to explore ‘tough’ new laws aimed at holding larger companies liable for late payments, while requiring greater transparency in their payment practices. Under the proposed rules, large companies will be required to include payment information in their annual reports, allowing better oversight of their relationships with smaller suppliers.
Previous attempts to tackle this problem, including the introduction of ‘mandatory reporting’ legislation in 2017, have had limited success. Research from the Chartered Institute of Procurement & Supply has found only a slight improvement in the payment behavior of large companies over the past five years, indicating widespread non-compliance.
Prime Minister Sir Keir Starmer stressed that eliminating payment arrears is central to the Government’s strategy to support small business growth. “Late payments cost companies tens of thousands of euros and are one of the biggest reasons for business failures. We are finally bringing forward the measures that small businesses have been asking for,” he said.
Business Minister Jonathan Reynolds echoed this sentiment, describing late payments as “simply unacceptable” and emphasizing the importance of holding larger companies accountable for their payment practices.
In addition to the proposed legal reforms, the government will also step up enforcement efforts against large companies that fail to report their payment performance as required. Company executives could face criminal charges and unlimited fines if they violate reporting rules. A new Fair Payments Code will be introduced, awarding companies gold, silver or bronze status based on their payment standards.