The government is initiating a significant crackdown on large companies that delay payments to small businesses, responding to a pressing issue that leads to the failure of approximately 50,000 small firms annually.
According to data from the Department for Business & Trade (DBT) and the Federation of Small Businesses, the average cost of late invoice payments for small enterprises amounts to £22,000 each year.
To address this concern, government officials are consulting on new regulations designed to enforce accountability among larger corporations and ensure a better cash flow for smaller enterprises. The consultation will explore a variety of policy options aimed at combating poor payment behaviors.
Additionally, new regulations will require all large firms to report payment practices in their annual financial statements. This move is expected to enhance the transparency of how larger companies manage their obligations to smaller suppliers.
Research by the Chartered Institute of Procurement & Supply last year highlighted that existing regulations compelling large firms to disclose their payment timelines have often been disregarded. The findings indicated only a modest improvement in late payment instances over the past five years, despite the implementation of reporting duties in 2017.
Sir Keir Starmer emphasized the importance of eradicating late payments, stating it is a crucial aspect of the government’s strategy to support the growth of small businesses.
“Late payments cost businesses tens of thousands of pounds and are a major contributor to business failures,” he stated.
He further remarked that after significant delays, the government is finally introducing the measures that small business owners have been advocating for to resolve late payment issues permanently.
Jonathan Reynolds, the business secretary, labeled late payments as “simply unacceptable,” asserting that cash flow issues can lead to the downfall of small firms. He stressed the need for larger companies to be responsible in their payment practices to cultivate a supportive environment for growth and job creation.
Alongside the consultation and legislative reforms, the DBT has indicated it will intensify enforcement efforts against major companies that fail to disclose their payment performance on the government website.
Company executives may face criminal charges and potentially unlimited fines under current laws. Furthermore, a new fair payment code will be implemented, granting businesses gold, silver, or bronze recognition based on their payment standards.