Crack down on late payments in major support package for small businesses

New package of measures aimed at tackling scourge of late payments

  • New Fair Payment Code and fresh rules on company reporting and major consultation unveiled as part of package to tackle late payments
  • Scourge of late payments costs SMEs £22,000 a year with 56 million hours of lost productivity across the economy – acting as a major brake on growth
  • Comes as Business Secretary set to visit food and drink businesses in Manchester struggling with late payments

The government has unveiled new measures today to support small businesses and the self-employed by tackling the scourge of late payments, which according to the Smart Data Foundry is costing small businesses £22,000 a year on average and leads to 50,000 business closures a year according to Intuit QuickBooks,

The government will consult on tough new laws which will hold larger firms to account and get cash flowing back into businesses – helping deliver our mission to grow the economy.

In addition, new legislation being brought in the coming weeks will require all large businesses to include payment reporting in their annual reports – putting the onus on them to provide clarity in their annual reports 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 on 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 potentially 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 SMEs in the UK suffer from late payments according to FSB, meaning roughly 2.8 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.

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

The Business Secretary will hold a joint call with the Federation of Small Businesses later today to outline to SME leaders the work the Department will undertake to put in place tough new laws to end bad payment culture.

New proposals, subject to consultation, will be bought forward on audit and audit committees, in order to help rebuild small businesses’ trust that they will be paid on time and to deliver on Labour’s manifesto commitment to tackle 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.

“We know how important it is for business owners to have the peace of mind and certainty around their cashflow to keep their businesses alive. Late payments cost businesses tens of thousands of pounds and is one of the biggest reasons businesses collapse.

“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.”

Business Secretary Jonathan Reynolds said: “Late payments are simply unacceptable and this government is determined to level the playing field for small business. When the cashflow runs dry, small firms go under which is why we need to hold larger business to account with their payment practices and foster an environment that supports growth and jobs. 

“Slashing trade barriers, reforming business rates, getting more SMEs exporting – this government is committed to small firms. We know there’s a lot more to be done, but today we are calling time on late payers once and for all.”

A new Fair Payment Code has also been announced today replacing the old Prompt Payment Code, and will be open to signatories this autumn. Businesses will need to prove they have met good payment standards before being awarded official code status.

This will be designed to push businesses to pay faster more often, to be awarded either gold, silver or bronze status. The Code will also shine a light on those responsible businesses doing the right thing by their suppliers and small firms. 

It comes as part of our wider work to support SMEs to help go for growth with reform to business rates, getting more small firms exporting and our new industrial strategy. The Secretary of State and Small Business Minister Gareth Thomas will discuss the new measures with small businesses later today.

Small Business Minister Gareth Thomas said: “Small businesses deserve to be paid on time, it’s as simple as that. I’m optimistic that today’s first big step will help pave the way for real change that supports SMEs to thrive and help to grow our economy.

New research published by the Department for Business and Trade has found payment problems multiply the further down the supply chain you go. 

With delays to payments increasing with each business along a supply chain, this results in smaller businesses generally experiencing more issues with late invoices than larger firms.

 These new findings underpin the need to move quickly to crack down on late payments. The research also found that there was a clear imbalance between big and small firms, and that administrative errors are a major factor in creating slow payments with 24% of firms saying that invoices being incorrectly handled added to delays.

The government will work closely with small and large businesses as well as groups such as FSB and Enterprise Nation to discuss what further measures can be considered to crack down on late payments while ensuring we strike the right balance and avoid excessive burdens on businesses.

Tina McKenzie, Policy Chair at the Federation of Small Businesses (FSB), said: “This is what real change looks like. Listening to small firms and prioritising action to tear down each and every barrier to growth.

“The Business Secretary has clearly recognised the importance of eradicating bad payment culture, which so devastates the UK supplier base and holds back growth. This series of actions today – including the crucial steps being taken to deliver on Jonathan Reynolds’ commitment on audit committees – shows the Government is rightly focused on delivery and working in partnership with the business community.

“There will be so many decisions the Government needs to get right, early – an actively pro-small business budget, a good industrial strategy and tackling late payment. Announcing this programme of work today is a huge confidence boost for the small business community and a clear signal the new Government intends to stand up for small firms.”

The Small Business Commissioner, Liz Barclay, said: “I am delighted to announce a new Fair Payment Code will be launched this autumn. The new code will reward businesses that treat their suppliers fairly and pay them quickly. It will also include an ambitious new Gold Award which aims to make 30-day payments the new standard for which businesses can aim.

“We need sustainable, resilient businesses at all levels of the supply chains, to achieve the growth the economy needs. That means paying everyone from the largest supplier to the sole trader quicker, so they have the confidence to invest, improve productivity and grow. Fair payment terms and on time payments are the key.”

Steve Hare, CEO of Sage, said:  “Late payments continue to challenge small and medium-sized businesses, affecting cash flow and growth. The UK Government’s new measures are all positive and show a strong commitment to addressing this issue.

“We must also focus on technological solutions. E-invoicing, for instance, already used in other countries, reduces late payments by 20% and processing times by 44%, saving small companies an average of £11,300 annually.”

Oliver Lloyd-Taylor, Founder of Black Milk, which has a Manchester-based café and sells award-winning pistachio & hazelnut spreads, said: “As a company we have experienced firsthand the sequential impact of late payments to our daily cash flow – which has, at times, lead us to be late with payments ourselves.

“We welcome the steps that the Government is making today to help protect small businesses, especially safeguarding them from larger businesses being able to utilise smaller businesses as an overdraft facility.” 

Kenny Goodman, co-founder of drinks company Hip Pop said: “Late payments can significantly impact small businesses like ours, especially when it comes to maintaining strong relationships with our suppliers.

“When we’re paid on time, we can ensure we do the same for those we work with, which is vital to keeping everything running smoothly.”

Terry Corby, Founder & CEO of campaign group Good Business Pays said: “On the same day that Good Business Pays published our Autumn 2024 Watchlist of Late & Slow Paying companies, it’s encouraging to see these new late payment measures being announced.   

“Only reputational pressure from organisations like Good Business Pays, supported with appropriate legislation and enforcement from government, will force a change in late payment behaviour. These new measures announced today will go some way to help drive that culture change.”

Latest plan to stop COVID spread

Temporary steps announced to tackle record infection rates.

Further measures to reduce the spread of coronavirus (COVID-19) are to come into effect tomorrow as Scotland recorded more than 1,000 new positive test results in a single day.

First Minister Nicola Sturgeon told parliament yesterday that actions are needed now to prevent a return to the peak level of infections experienced in spring by the end of this month.

She said: “While there are significant restrictions still in place – and they are hard and painful – we are living much more freely now than in the spring and early summer.

“We are determined – if at all possible – that this will continue to be the case. We are not going back into lockdown today. We are not closing schools. We are not halting the remobilisation of the NHS for non-Covid care. And we are not asking people to stay at home.

“The need for action is highlighted by today’s figures and, more fundamentally, in the evidence paper published today. To try to interrupt this trajectory, we must act now. While the measures will feel like a backward step, they are in the interests of protecting our progress overall.

“It is by taking the tough but necessary action now that we hope to avoid even tougher action in future.”

The new restrictions, backed by a new £40 million support fund for business and the existing UK Job Retention Scheme, will be in place nationwide for 16 days, with tighter restrictions across central belt areas where the infection rate is highest.

Restrictions on licensed premises will come into force from 6pm tomorrow (Friday 9 October), with all other restrictions applying from 00:01 Saturday 10 October.

The new measures are:

Nationwide (excepting central belt areas):

  • Hospitality (food and drink): all premises may only open indoors between 6am and 6pm, with no sales of alcohol
  • Hospitality (food and drink): premises may open outdoors until 10pm, with sales of alcohol (where licensed)
  • Takeaways (including from pubs and restaurants) can continue
  • Evening meals may be served in accommodation for residents only but no alcohol can be served
  • Current meeting rules, maximum of six people from two households, continue to apply
  • Specific life events, such as weddings and funerals, may continue with alcohol being served, with current meeting rules for these events (20 person limit in regulated premises only)

Central belt area focusing on five health board areas (Ayrshire & Arran; Forth Valley; Greater Glasgow & Clyde; Lanarkshire; Lothian):

  • All licensed premises will be required to close, with the exception of takeaway services
  • Cafés (unlicensed premises) which don’t have an alcohol licence will be able to open between 6am and 6pm
  • Takeaways (including from pubs and restaurants) can continue
  • Evening meals may be served in accommodation for residents only but no alcohol can be served
  • Specific life events, such as weddings and funerals, may continue with alcohol, with current meeting rules for these events (20 person limit in regulated premises only)
  • No group exercise classes for indoor gyms and sports courts, pools with an exemption for under 18s
  • No adult (18+) contact sports or training, except professional sports, indoor or outdoor
  • No outdoor live events
  • Snooker/pool halls, indoor bowling, casinos and bingo halls are to close
  • Public transport use should be minimised as much as possible, such as for education and work, where it cannot be done from home
  • Current meeting rules, maximum of six people from two households, continue to apply

Additionally, from this weekend, shops across Scotland are asked to return to two metres physical distancing and reintroduce the mitigations they put in place earlier in the pandemic, including one-way systems.

The challenge Scotland faces has also been set out in an evidence paper published today by senior clinical advisors: the Chief Medical Officer, the Chief Nursing Officer and the National Clinical Director. It shows the R number is currently higher in Scotland than in other UK nations and that three weeks after opening hospitality, the R number rose to 1 and above.

In the seven days up to Monday, the number of people in hospital with Covid increased by almost 80%. In the past week, cases in people over 80 years old increased by 60% and cases in the 60-79 year old age group more than doubled.

During the period these measures are in place, the Scottish Government will work with all sectors to review guidance in place to ensure all steps are being taken to minimise COVID-19 transmission and support compliance with regulations.

Edinburgh Chamber of Commerce has reacted to the announcement, which will decimate many of Scotland’s businesses – in particular, the hospitality sector which employs tens of thousands of people in Edinburgh.

In particular, businesses in the sector believe:

  • The evidence base on which the Government is making decisions which have such devastating impacts needs to be more robust and compelling. The Government’s own analysis is that 1 in 5 of those reporting infections have visited hospitality venues, and acknowledges that there is no evidence confirming where they acquired the virus
  • The First Minister acknowledges that the vast majority of hospitality businesses have spent scarce resources and significant time making their premises as safe as possible, yet still hospitality venues bear the brunt of restrictive measures
  • There has been NO genuine consultation with the sector on what measures are necessary and NO desire to seek any potential alternative solutions with businesses.

Joanne Davidson, Director of Policy at Edinburgh Chamber of Commerce, said: “Everyone in the country acknowledges the pandemic is a serious public health issue and we appreciate that Government has to make hard decisions in the current climate.

“However, it is an issue we need to tackle together, and that means involving businesses in the process. Taking decisions without recourse to those whose lives, businesses, employment and well-being are torn apart by these decisions is not the way to bring our country through this process successfully.

“Along with all of our colleagues in the Chamber network, we call on the Scottish Government to consult in a genuine way with business, to provide more robust data on which serious decisions are being based, and to seek solutions and meaningful engagement with the business community which minimise the impact and ensure adequate and appropriate financial support is made available to protect jobs and livelihoods.”

Federation of Small Businesses Scotland is warning that the mental health of small business owners and the self-employed has suffered during this pandemic.

FSB’s Andrew McRae said: “The vast majority of those in business want to be – and are – playing their part in tackling the crisis. But this year has taken its toll on the mental health of those that work for themselves, especially those that operate in certain sectors.

“Governments north and south of the border need to ensure there’s enough help on offer to see smaller firms through a crisis that’s not of their making. These local firms aren’t expendable, and care needs to be taken not to treat them as such.”

FSB offers a range of mental health support advice for members and the wider small business community.