Insights Late Payments: Government announces a series of measures to ensure companies pay promptly

The Government has announced a series of measures aimed at tackling what it calls the “scourge of late payments”. According to recent research, it is estimated that late payments cost Small and Medium-Sized Enterprises an average of £22,000 each a year, a total of 56 million hours of lost productivity, and lead to the closure of 50,000 businesses each year.

The package of measures includes the introduction of a ‘Fair Payment Code’ which will replace the Prompt Payment Code, which had come under some criticism in a recent consultation process. The Government has stated that the new Code will “address issues raised by stakeholders with the Prompt Payment Code and aims to be more ambitious, aspirational and robust”. In particular, it will include ‘fair payment principles’ against which companies will be judged and awarded a status: Gold will be awarded for those companies paying 95% of their suppliers within 30 days; Silver will go to those paying 95% of their small business suppliers within 30 days and all other suppliers within 60 days; and Bronze will denote those companies paying 95% of suppliers within 60 days. The announcement from the Small Business Commissioner adds that “the new Code will also be more aspirational by supporting businesses which wish to improve payment practices and helping them move up from Bronze to Silver, and to Gold over time. There will also be a more rigorous application process, a two-year limit on awards and a more robust approach to enforcement.” Further details of the Fair Payment Code will be announced later this year.

In addition to the new Code, the Government has announced that new legislation will be brought forward in the coming weeks which will require all large businesses to include payment reporting in their annual reports. According to the press statement, this will “put the onus on them to provide clarity in their annual reports about how they treat small firms. This will mean company boards and international investors will be able to see how firms are operating.”

Furthermore, the Government has stated that enforcement of the existing late payment performance reporting regulations – which require large companies to report their payment performance twice a year – will be “stepped up”. Consultations will also be launched on reforming audit and audit committees “to help rebuild small businesses’ trust that they will be paid on time”, and on exploring other policy measures which could help address poor payment practices.

Commenting on these announcements, the Small Business Minister, Gareth Thomas, said “new research published by the Department for Business and Trade has found payment problems multiply the further down the supply chain you go. With delays to payments increasing with each business along a supply chain, this results in smaller businesses generally experiencing more issues with late invoices than larger firms. These new findings underpin the need to move quickly to crack down on late payments…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.”

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