Skip to main content
Contractors & FreelancersSelf AssessmentSmall to Medium Businesses

Late payment support for small businesses

By November 14, 2023No Comments

In a move that will bring relief to thousands of small businesses up and down the United Kingdom, the Government is set to unveil measures to tackle late payments.

According to government figures, small and medium-sized enterprises (SMEs) were owed an average of £22,000, with late payments draining the UK economy of £2.5billion each year. 

Late payments, and large corporations using their positions of power to set unfavourable payment terms, put small businesses at financial risk, while sending ripple effects throughout supply chains. Legislation to deal with this issue is long overdue, with the then-Small Business minister Margot James describing the scale of late payments in the UK as ‘completely unacceptable’ back in 2017, but to date, the Government has been slow in bringing forward meaningful change on the issue.

2023 worst year for insolvencies… and late payments are a big factor

The first half of 2023 saw business insolvencies increase year-on-year, with late payments a significant factor.

In the first half of 2023, there were almost 13,000 insolvencies in the UK. The worst hit sectors were: 

  • Construction
  • Wholesale and retail
  • Accommodation and food services
  • Professional, Scientific and Technical Activities
  • Administrative and Support Service Activities

Earlier this year, the Federation of Small Businesses (FSB) released a report uncovering the true scale of economic damage caused by late payments.

Time is Money: The Case for Late Payment Reform’ found that over half (52%) of small businesses experienced late payment in 2022, with a quarter (25%) reporting that late payments had increased. The report also found that 37% of businesses surveyed had to apply for credit to help manage their cash flow.

On publication of the report, FSB Policy Chair Tina McKenzie said that late payments had ‘continued to spiral out of control’.

“[S]ince 2019 Ministers lost the momentum and enthusiasm to make a difference [on late payments],” she said.

“We now need to reinvigorate this agenda, and to push for growth and productivity – the best way to do this is to sort out the UK’s poor payment culture. Our report highlights the urgent need for change and the importance of fair payment practices”

What measures are being introduced?

Speaking about the proposed changes, Secretary of State for Business and Trade Kemi Badenoch said:

“SMEs make up 99 per cent of firms in the UK and are the lifeblood of our economy. I know that late payments are a massive barrier to growth and I am determined to fix that.

“The measures we’re announcing will take a big step towards making sure SMEs get their payments on time, helping firms to grow and prosper.”

So what measures can we expect to see following the Prompt Payment and Cash Flow Review?

Extending the Reporting on Payment Practices and Performance Regulations

Since April 2017, all large UK companies have had a duty to report publicly on their payment policies, practices and performance, as it relates to contracts between two (or more) businesses for goods, services or intangible property, including intellectual property.

Following a consultation, legislation will be taken forward that extends payment performance reporting obligations. This will be new metrics for reporting, including a metric for the value of an invoice. This will allow businesses and commentators to see the value of an invoice, invoices that are paid late and disputed invoices.

Increase the power of the Small Business Commissioner

Set up by the Government under the Enterprise Act 2016, the Office of the Small Business Commissioner (OSBC) is an independent public body that was created specifically to tackle the problem of late payments and unfavourable payment practices.

Part of the new measures will be a broadening of the OSBC’s powers and responsibilities, enabling the Commissioner to launch investigations into companies based on anonymous information. The OSBC will also be able to publish reports where necessary off the back of that information.

Strengthening the Prompt Payment Code

The Prompt Payment Code was first introduced in 2008, and is a voluntary code of practice that businesses can sign up to. It is designed to encourage supplier payment within 30 to 60 days.

This code is set to be strengthened by the Government, with signatory businesses having to reaffirm their commitment every two years.

Greater advice for small businesses

Greater advice will be made available for small businesses on how to better negotiate favourable payment terms, the benefits of going digital, and more.

How we help small businesses

As a business that started out small, we understand the unique challenges you’re facing, whether that’s dealing with late payments, understanding your tax liability or making sure you’re aware of all the small business support you’re entitled to.

Unlike some of our competitors, Warr & Co doesn’t simply offer a one-size-fits-all accountancy service, instead providing tailored support that meets your business needs. This includes help with corporate tax planning, payroll, cloud bookkeeping, VAT and R&D relief.

To find out more about how we can help your small business, including providing advice and support relating to late and non-payment, get in touch with the expert team here at Warr & Co today, or book your free, no obligation consultation.

Leave a Reply

Close Menu