The UK government is gearing up to address the longstanding problem of late payments from large companies to small businesses, a major contributing factor to the downfall of around 50,000 SMEs every year. Studies conducted by the Department for Business & Trade (DBT) and the Federation of Small Businesses have revealed that delayed payments result in an average annual cost of £22,000 for small enterprises.
To combat this issue, a consultation has been initiated to investigate the implementation of strict new measures that would make larger firms more responsible for timely payments, necessitating more openness in their payment processes. The proposed regulations would require big corporations to disclose payment data in their annual reports, enabling more scrutiny of their interactions with smaller suppliers. Despite earlier efforts like the "duty to report" legislation introduced in 2017, research by the Chartered Institute of Procurement & Supply suggests there has been only minimal progress in the payment behavior of large companies over the last five years, indicating broad non-adherence to regulations.
Prime Minister Sir Keir Starmer and Business Secretary Jonathan Reynolds have both emphasized the detrimental impact of late payments on businesses and the necessity of ensuring accountability among larger firms for their payment behaviors. They underscored the significance of these measures in aiding small business growth and preventing business failures due to delayed payments. In addition to the proposed legal changes, the government plans to step up enforcement actions against companies that fail to report their payment performance as mandated, with potential criminal prosecutions and fines for non-compliance. An additional framework in the form of a fair payment code will be implemented, grading businesses based on their payment standards to promote ethical practices within the business community.