UK companies that pay suppliers late will be fined under new law
As many as 38 businesses shut down each day, partly owing to late payments, according to the Government, with tradespeople, shopkeepers and start-up founders particularly vulnerable. It is estimated that late payments cost the economy £11bilion a year. 'Late payments are one of the biggest barriers to small business growth - causing cashflow problems that stop firms from scaling up and investing in their future,' the Government said.
'Every day, hardworking businesses close their doors because they aren't paid on time.' The small business commissioner will be handed new powers, including carrying out spot checks and enforcing a 30-day invoice verification period to speed up resolutions to disputes. The legislation will also introduce maximum payment terms of 60 days, reducing to 45 days, to ensure businesses are paid on time.
Small businesses have been quietly battling late payments, with the issue only worsening since the cost of living crisis. Research by the Federation of Small Businesses trade body in 2023 found if late payments had been made on time, 50,000 business closures could be avoided each year.
The definition of prompt payment for a small business suppliers, as per the Prompt Payment Code (PPC), is to pay 95 per cent of invoices from small businesses with fewer than 50 employees within 30 days. However, the code is voluntary and plenty of businesses flout the rules.
The Prime Minister said: '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. 'It's unfair, it's exhausting, and it's holding Britain back. So, our message is clear: it's time to pay up.'
Tina McKenzie, policy chair of the FSB added: 'Today's plan is an encouraging commitment from the Government to take the side of small businesses in the great growth challenge ahead.' The crackdown on late payments is part of a wider package, including plans to pump £4billion of financial support into small businesses. This includes £1billion for new firms, with 69,000 start-up loans and mentoring support.
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