UK Government Proposes Tough New Laws to Address Late Payments to Small Businesses

Research from the Department for Business & Trade (DBT) and the Federation of Small Businesses reveals that delayed payments cost small businesses an average of £22,000 annually. In response, the UK government has launched a consultation to explore stringent new regulations aimed at curbing late payments and enhancing transparency in payment practices.

Under the proposed regulations, large companies would be required to disclose their payment data in their annual reports, allowing for closer scrutiny of their dealings with smaller suppliers. This move aims to address persistent issues with delayed payments and ensure that larger firms are held accountable.

Previous attempts to tackle the problem, including the introduction of the “duty to report” legislation in 2017, have seen only modest improvements. Research by the Chartered Institute of Procurement & Supply indicates that, despite efforts, payment behavior among large companies has only slightly improved over the past five years, with widespread non-compliance remaining a significant issue.

Prime Minister Sir Keir Starmer underscored the importance of resolving this issue, stating, “Late payments cost businesses tens of thousands of pounds and are one of the biggest reasons for business failure. We are finally bringing forward the measures that small businesses have been calling for.” Starmer emphasized that addressing late payments is a key part of the government’s strategy to support small business growth.

Business Secretary Jonathan Reynolds supported this view, labeling late payments as “simply unacceptable” and highlighting the need to hold larger firms accountable for their payment practices. Reynolds stressed the significance of enforcing compliance with the new regulations to protect smaller businesses.

In addition to the proposed legal reforms, the government plans to enhance enforcement against firms that fail to adhere to reporting requirements. Directors of companies that breach these rules could face criminal prosecution and unlimited fines. A new fair payment code will also be introduced, which will categorize businesses based on their payment standards, awarding them gold, silver, or bronze status according to their adherence to timely payments.

These measures aim to address the persistent issue of late payments, which has long been a source of financial strain for small businesses across the UK. The proposed regulations and enhanced enforcement efforts represent a significant step towards ensuring fairer and more transparent payment practices in the business world.