New pledge to crack down on late payments to small businesses

The government has pledged to support small businesses and the self-employed by tackling what it calls “the scourge of late payments”.

Rob Winder Senior Associate Chartered Legal Executive in our Dispute Resolution team provides an update.

Delays to payment of invoices cost small businesses £22,000 a year on average and lead to 50,000 closures a year.

The government is now consulting on tough new laws designed to hold larger firms to account.

In addition, new legislation will require all large businesses to include payment reporting in their annual reports – putting the onus on them to provide clarity 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 for 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 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.

Every quarter, 52% of small firms in the UK suffer from late payments, meaning roughly 2.6 million small firms face this issue, with the Federation of Small Businesses describing it as one of the biggest problems facing SMEs.

Late payments are just one element of the problem, with some SMEs forced to wait months for contracts to be fulfilled and some are even forced to take out loans against their own homes to manage cash flow.

Ministers say cracking down on late payments will unlock growth for 5.5 million small firms by enabling them to invest their time in hiring more employees, boosting wages, and exporting around the world, rather than chasing down late payments.

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. 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.”

For more information about the issues raised in this article please contact Rob on 01228 516666 or click here to send him an email.