Large businesses could be fined for failing to pay small and medium-sized business suppliers on time, as part of a Government crackdown on SME late payments.
The move will see entire company boards held responsible for supply chain payment practices, and not just finance directors, as previously mooted.
The Government has also announced a new £1m fund to to encourage businesses to use technology to simplify invoicing, payment and credit management.
And the Small Business Commissioner could have beefed-up powers to tackle SME late payments and binding payment plans.
SME late payments result in the closure of more than 50,000 small businesses each year, according to the Federation of Small Businesses, costing the economy £2.5 billion. On average, small businesses are owed £80,000 apiece. In 2018, Britain’s small businesses collectively spent £6.7bn just to collect money they were already owed – a huge drain on investment.
From now on, company boards will be held accountable for payment practices to small businesses within their companies in a drive to increase transparency and accountability on late payments. Measures will force audit committees to report payment practices in company annual reports.
The Small Business Commissioner will also assume responsibility for the voluntary Prompt Payment Code of best practice.
Small Business Minister Kelly Tolhurst said: “The vast majority of businesses pay their bills on time, with the amount owed in late payments halved over the last five years. But as a former small business owner, I know the huge impact a late payment can have on the ability of a small business to plan, invest and grow.
“Small businesses are the backbone of our economy and through our modern industrial strategy we want to ensure the UK is the best place to start and grow a business. These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly – ending the unacceptable culture of late payment.”
Mike Cherry, chairman of the FSB, said: “Small businesses will be delighted with today’s announcement. FSB has worked very hard with government to create a whole-board approach to late payment within the UK’s large companies, and empower audit committees to look after the supply chain. Together with measures to strengthen the Small Business Commissioner’s powers and reform the Prompt Payment Code, the measures today could finally see an end to poor payment practice. Changing our business culture will boost the small business community, productivity and growth.”
“When small firms are paid late, it causes financial hardship and stifles growth. Everyone deserves to be paid on time when they have done the work and provided the goods and services requested. No one should have to wait months on end to receive the money they’re owed.
“By forcing audit committees of big businesses to report payment practices in company annual reports, there will be no more covering-up by those who treat smaller suppliers shabbily.
“Ending late payments and poor practices is not only the right and fair thing to do, it will also spare small firms the financial impact of waiting for the money they’re owed, and instead allow them to invest and grow.”
Small Business Commissioner Paul Uppal said: “During the first 16 months of my post I have been struck by the trepidation felt by small businesses when talking about late payment with their large suppliers. The Government has a range of measures in place to tackle late payment and this consultation is a further step in the right direction to protect and support small businesses.”
Edwin Morgan, interim director general of the Institute of Directors, added: “Forcing larger firms to report on their payment practices will ensure much greater scrutiny where standards fall short, and sunlight is often the best disinfectant.
“We are delighted that the government has heeded the IoD’s calls to make this a whole-board approach, against suggestions that responsibility be allocated to an individual board member. All board members must get to grips with this issue, and the collective nature of board decision-making is a crucial pillar of effective corporate governance.”
How to tackle late payments to your small business