The UK government has announced a package to support small businesses and the self-employed by addressing the persistent issue of late payments.
On average, late payments cost small businesses £22,000 annually and contribute to approximately 50,000 business closures each year. In response, the government is considering stringent new laws to hold larger corporations accountable and ensure swift payments to bolster small business growth.
This initiative includes the introduction of legislation that will compel large businesses to report their payment practices bi-annually on the official government website, GOV.UK, enhancing transparency and accountability. These reports will also be a mandatory inclusion in annual reports, providing clear insights into how these firms engage with smaller entities. Directors of companies failing to comply could face criminal charges, including unlimited fines.
A consultation is set to be launched in the upcoming months to explore additional policy measures to combat detrimental payment practices that plague small firms. According to the Federation of Small Businesses, 52% of small firms experience late payments quarterly, affecting around 2.6 million businesses across the UK.
Prime Minister Keir Starmer emphasized the government’s commitment to removing growth barriers for small businesses, stating, “We’re determined to back small businesses by unlocking their barriers to growth, and stamping out late payments is at the heart of this.”
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.”
Furthermore, a new Fair Payment Code will be introduced, replacing the outdated Prompt Payment Code. Businesses will need to demonstrate adherence to good payment practices to earn official code status, ranging from gold to bronze, highlighting those that consistently treat their suppliers fairly.
This policy rollout is part of a broader strategy to bolster SME growth, including slashing trade barriers and reforming business rates. The government’s new industrial strategy and increased support for SME exports are also aimed at fostering a more conducive environment for small businesses.
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