The government has unveiled new measures to support small businesses and the self-employed by tackling what it calls the ‘scourge of late payments’.
The issue, which is costing small businesses £22,000 a year on average, leads to 50,000 business closures a year.
The government will consult on tough new laws which it says will hold larger firms to account and get cash flowing back into businesses.
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.
“We’re determined to back small businesses by unlocking their barriers to growth, and stamping out late payments is at the heart of this,” said Prime Minister Keir Starmer.
“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 added: “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.”
A new Fair Payment Code has also been announced, replacing the 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.
Tina McKenzie, Policy Chair at the Federation of Small Businesses, 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.”