Over 50% of SMEs within the UK are affected by late payments, costing small firms an estimated £22,000 a year. In an announcement made on Thursday 19th September, the Government have declared an enhanced package of measures, as well as the hotly anticipated, new ‘Fair Payment Code’, in a bid to fight the problem.
Currently, law states that responsible directors of non-compliant companies who have failed to report on their payment practices could face criminal prosecutions, fines, and even criminal records. The Government have unveiled plans to go one step further, with new legislation expected in the coming weeks that will require all large businesses to include payment reporting in their annual reports, providing transparency on how they are treating small firms. As a result, company boards and international investors will be able to see how firms are operating.
In addition, plans are to step up enforcement of existing late payment performances, all in a bid to encourage cash flow, as part of Labour’s manifesto to grow the economy. By unlocking growth for 5.5 million firms, the government are hoping for more investment, with more employees hired, a boost to wages and increased export of goods.
Collaboration between the Business Secretary and the Federation of Small Businesses continues, as new laws and proposals to end bad payment culture, enter consultation.
Prime Minister Keir Starmer has said:
“We’re determined to back small businesses by unlocking their barriers to growth, and stamping out late payments is at the heart of this.”
“After years of delay, we’re bringing forward measures that small businesses have long been calling for to tackle late payments once and for all.”
In place of the old Prompt Payment Code, the new Fair Payment Code is set to open for signatories later this year, where businesses will be required to prove they have met good payment standards prior to gaining official code status.
Research published by the Department for Business, in support of the new measures, indicates the impact longer supply chains have on exacerbating payment delays, and smaller firms experiencing more issues with late invoices. A stark imbalance was evident between large and small firms, with the research highlighting administrative errors as a major factor in creating slow payments. A substantial 24% of firms confirmed that incorrectly handled invoices added to the delays.
The new measures have received support from the likes of Small Business Commissioner, Liz Barclay, and Good Business Pays founder, Terry Corby.
Liz Barclay stated “We need sustainable, resilient businesses at all levels of the supply chains, to achieve the growth the economy needs. That means paying everyone from the largest supplier to the sole trader quicker, so they have the confidence to invest, improve productivity and grow. Fair payment terms and on time payments are the key.”
Over the coming months, the Accounts Payable Association (APA) will continue to support the Accounts Payable community and our membership, guiding AP teams to adopt measures in line with the new measures and Fair Payment Code.
Jamie Radford, APA CEO, issued the following statement:
“The APA are committed to supporting the government’s initiative to put an end to late payments, which have damaging ramifications on small businesses in the UK. Our organisation recognises the importance of best practice within the entire finance function, and the implications on the UK economy when proper practices are not adhered to.”
“As well as our Annual Conference in just a few short weeks, the APA will be delivering our annual Accounts Payable Update Courses throughout 2024/25, where we will go into detail about the new Fair Payment Code and government measures. We encourage any Accounts Payable professionals who are worried about the new measures and are seeking guidance on how to achieve compliance, to consider joining us – we will be glad to help.”
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Read the full statement on gov.uk here: Crack down on late payments in major support package for small businesses – GOV.UK (www.gov.uk)
