The UK government plans to create what it is calling the ‘toughest late payments laws in the G7’.
It said they will be the most significant legislative reforms in 25 years to tackle an issue that shuts down 38 businesses every day and costs the UK economy £11bn a year.
Small and medium sized firms employ 60% of the country’s workforce and generate £2.8tn in turnover. However the odds have been stacked against small businesses, with cashflow problems caused by not being paid on time holding them back from scaling up.
The new laws are set to give stronger powers to the Small Business Commissioner to empower them to wield fines, worth potentially millions of pounds, against the biggest firms who persistently choose to pay their suppliers late.
The Small Business Commissioner will be given new powers to carry out spot checks and enforce a 30-day invoice verification period to speed up resolutions to disputes. The upcoming legislation will also introduce maximum payment terms of 60 days, reducing to 45 days.
Audit committees, under the proposals, will also be legally required to scrutinise payment practices at board level, placing greater pressure on large firms to show they’re treating small suppliers fairly backed by mandatory interest charges for those who pay late.
“From builders and electricians to freelance designers and manufacturers—too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses,” said Prime Minister Keir Starmer.
“It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.
“Through our Small Business Plan, we’re not only tackling the scourge of late payments once and for all, but we’re giving small business owners the backing and stability they need for their business to thrive, driving growth across the country through our Plan for Change.”
The government is also tackling another major barrier for small businesses – access to finance. It is launching a new £4bn wave of financial support, including a £1bn boost for new businesses, with 69,000 Start-Up Loans and mentoring support.
The Government is also going further by delivering a new £3bn boost to the British Business Bank – raising the total guarantee to £5bn – to help lenders offer more small business loans through the ‘ENABLE programme’.
Under the scheme, the BBB provides a government-backed guarantee to help lenders feel safer when lending to smaller or newer businesses, enabling them to offer better loan terms including with lower interest.
Policy Chair of the Federation of Small Businesses (FSB), Tina McKenzie, said: “Making sure businesses are paid on time, that our high streets thrive, and creating conditions in which everyone can start and succeed in business are crucial priorities for small businesses, communities and the economy. It’s very welcome that the Prime Minister has today made them his Government’s priorities.
“I’m pleased that FSB and the Government have been able to work in lockstep on the bold and ambitious measures needed to tackle the scourge of late payment through legislation, and other pro-growth, pro-small business measures.
“Today’s plan is an encouraging commitment from the Government to take the side of small businesses in the great growth challenge ahead.”
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