The government is targeting large firms in a crackdown on late payments for small businesses
The UK government is to introduce new measures aimed at tackling late payments by large firms to small businesses, a problem that affects 50,000 SMEs every year.
On average, late payments cost small businesses £22,000 a year, according to research from the Department for Business and Trade (DBT) and the Federation of Small Businesses.
A consultation has been launched to test “tough” new rules designed to hold big companies to account for late payments, while requiring more transparency in their payment practices. Under the proposed rules, large firms would be forced to include payment data in their annual reports, allowing for closer scrutiny of their dealings with smaller suppliers.
Previous efforts to address the issue, including the introduction of a “duty to report” law in 2017, have seen limited success. A study by the Chartered Institute of Procurement & Supply found little improvement in the payment behavior of large companies over the past five years, highlighting widespread non-compliance.
Prime Minister Sir Keir Starmer has stressed that ending late payments is key to the government’s strategy to support the growth of small businesses. “Late payments cost businesses tens of thousands of pounds and are one of the biggest reasons for business failure. We are about to present the methods that small businessmen have been looking for,” he said.
Business Secretary Jonathan Reynolds echoed the sentiment, describing late payments as “absolutely unacceptable” and stressing the importance of holding large firms to account for their payment practices.
In addition to the proposed legal changes, the government will also step up efforts to enforce large companies that fail to report their payment performance as required. Corporate directors can face criminal prosecution and unlimited fines if they break the reporting rules. A new qualifying payment code will be introduced, awarding businesses gold, silver, or bronze based on their payment levels.
