The UK government is set to introduce new measures aimed at tackling the problem of late payments by large companies to small businesses, which contributes to the collapse of 50,000 small and medium-sized businesses every year.
On average, late payments cost small businesses £22,000 a year, according to research by the Department for Business and Trade and the Federation of Small Businesses.
A consultation has been launched to explore new “tough” rules designed to hold big companies accountable for late payments, while requiring greater transparency in payment practices. Under the proposed rules, big companies would be required to include payment data in their annual reports, allowing for closer scrutiny of their dealings with smaller suppliers.
Previous attempts to address the issue, including the introduction of ‘duty to report’ legislation in 2017, have had limited success. Research by the Chartered Institute of Procurement and Supply found only a small improvement in payment behaviour among large companies over the past five years, highlighting the prevalence of non-compliance.
Prime Minister Sir Keir Starmer has said that eliminating late payments is a key part of the government’s strategy to support small business growth. He said: “Late payments cost businesses tens of thousands of pounds and are a major cause of business failure. We have finally introduced the measures that small businesses have been calling for.”
Business Secretary Jonathan Reynolds echoed this sentiment, describing late payments as “completely unacceptable” and stressing the importance of holding major companies to account 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 directors could face criminal prosecution and unlimited fines if they breach reporting rules. A new Fair Payments Act will be introduced, giving companies gold, silver or bronze status based on their payment criteria.