The government has unveiled new measures today to tackle the “scourge” of late payments affecting small businesses and the self-employed.
Late payments cost SMEs £22,000 a year and lead to 50,000 business closures annually, as well as 56 million hours of lost productivity across the economy, according to the government.
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The department for business and trade’s support package involves consulting on ‘tough new laws’ to hold larger firms accountable and ‘get cash flowing back into businesses.’
New legislation will also be brought in the coming weeks, requiring all large companies to include payment reporting in their annual reports. This will allow company boards and international investors to see how firms are operating.
Enforcement will be stepped up on the existing late payment performance reporting regulations, which require large companies to report their payment performance twice yearly on the government website.
A new Fair Payment announced today will replace the old Prompt Payment Code and will be open to signatories this autumn. Businesses will need to prove they have met good payment standards before receiving official code status of gold, silver or bronze.
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The consultation, to be launched in the coming months, will also consider further measures to help address poor payment practices.
The Federation of Small Businesses described late payments as one of the biggest problems facing SMEs, with 52% of small UK firms affected every quarter.
Under current laws, responsible directors at non-compliant companies who don’t report their payment practices could face criminal prosecutions such as potentially unlimited fines and criminal records.
Gareth Thomas, small business minister, said: ”Small businesses deserve to be paid on time, it’s as simple as that. I’m optimistic that today’s first big step will help pave the way for real change that supports SMEs to thrive and help to grow our economy.