New measures announced to address late payments for small businesses

New measures to ease the problem of late payments on small businesses and their finances have been announced by Government.

The measures will tackle a problem costing the UK economy £11 billion every year, with entrepreneurs and SME owners often forced to wait months to receive money they have already earned and having to chase to receive it. Government estimates that 38 businesses shut their doors every single day because they are not paid on time.

Under changes set out, the Small Business Commissioner will be given sweeping new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders. Firms that persistently pay late or fail to comply with the new laws could face fines into the tens of millions.

Additional changes include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.

A consultation will also launch to ban the withholding of retention payments under the terms of construction contracts.

After working closely with the Federation of Small Businesses (FSB), boards or audit committees of persistently late-paying large companies will be required to publish explanations for poor payment performance and the actions they are taking to address it. 

FSB Policy Chair Tina McKenzie said:

“Late payments are a blight on our economy, so FSB is pleased to have worked in partnership with the Government to deliver the toughest legislation in the G7.  The new laws will finally bring a stop to big businesses using their small suppliers as sources of free credit.

“For the first time, audit committees and boards will question and challenge poor payment performance, publish it in annual reports for all to see, and put it right.  Paying in 60 days is not prompt – but strengthening that as the absolute maximum cap after years of dithering is a good step towards encouraging payments in 30 days across all supply chains.  Improving the Small Business Commissioner’s powers will also help, mandating CEO’s of Britain’s poor payers to take the phone call.

“This is real progress, and we’ll keep working with the Government to make sure new laws are brought in as soon as possible.”

Emma Jones CBE, Small Business Commissioner said: 

“We are on a mission to make life easier for small firms by getting money moving faster through the economy by tackling late payments. The measures the Government has announced today will strengthen the role of my office in taking on the worst payers alongside ensuring small businesses have a stronger voice on payment terms and late payment interest. These reforms will reduce the hours spent chasing debt allowing small businesses to focus on more productive and enjoyable growth.”