Tougher measures have been proposed to stamp out ‘late payment culture’ and protect small businesses.
The Department for Business and Trade (DfBT) aims to tackle the problem of late payments to small companies, as part of a wider review of cash flow and prompt payment in business.
Late payment of invoices and long payment terms can be a barrier to growth, especially for SMEs, as time is wasted chasing payment from customers while cash flow problems build up and impact a company’s viability.
And struggling smaller construction firms in the supply chain continue to be overrepresented in industry insolvency figures.
‘Named and shamed’
Under the new measures, action against large businesses will include increased transparency of payment performance.
These will include a value metric, so businesses and commentators can see the value of invoices, invoices paid late, and disputed invoices.
Increased enforcement action will be taken to improve overall rates of compliance and non-compliance will be published on social media and may ultimately result in a fine.
Other action includes embedding late payments as part of ESG (Environmental, Social, Governance) reporting.
Reporting on retention payments for businesses in the construction sector will be introduced.
Smaller businesses will get more advice on negotiating better payment terms and how going digital could speed up payment and help manage cash flow.
Banned from public contracts
Under the new measures, it will also be easier to analyse payment times by sector under the payment reporting portal, and suppliers with payment times longer than 55 days from April 2024 and then 45 days from April 2025 will be excluded from bidding for public contracts worth more than £5 million.
If enacted into legislation, the Small Business Commissioner could also receive more powers to undertake investigations and publish reports from anonymous information and intelligence.
Government will also review non-financial reporting (NFR), which looks at aspects of a businesses’ annual reports not related to finances, including on human rights.
The DfBT plans to extend the scope of the Reporting on Payment Practices and Performance Regulations following a consultation with a wide range of small businesses and trade representatives.
“Too many small businesses struggle to survive because they are not being paid on time,” said Kevin Hollinrake MP, minister for enterprise, markets and small business. “Whilst there is evidence of improvement in payment practice in recent years, late payment remains stubbornly widespread.
“Small businesses have had to contend with a global pandemic, which disrupted both daily life and global supply chains, the war in Ukraine and rising costs. These events have put pressure on the UK’s small businesses.
“It was important to hear from a wide range of small businesses and trade representatives, in order to develop recommendations that work. The opinions of small businesses have been integral to policy design.”
Adding: “Alongside this review the government is also conducting a review of Non-Financial Reporting which is considering how we can improve businesses’ annual reports and work we have already done on prompt payment has been fed into the NFR Review.
“We want to ensure our policies strike a balance, encouraging businesses to develop and maintain clear agreements on payment terms which give small businesses a fair deal.”
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