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How the government is tackling late payments

Small businesses are one of the motors driving the UK economy, accounting for £2 trillion of turnover each year. Despite their economic heft, SMEs are more likely than larger organisations to find themselves being paid late and having to chase overdue invoices from bigger suppliers. But could the late payments situation finally be about to change for the UK's small companies?

Late payments can be a real problem for SMEs: according to the Federation of Small Businesses (FSB), 50,000 companies go out of business because of late payments each year. The FSB also estimates that late payments are costing the UK economy nearly £2.5 billion.

Unsurprisingly, it's an issue that SMEs have been calling for the government to act on for some time. In June, the Department for Business, Energy and Industrial Strategy (BEIS) released a response to its call for evidence about late payments. The response gives an idea of the government's direction of travel on late payments, and gives some hope to SMEs that things could be looking up.

The response states that the government will open another consultation, this time on extending the powers of the Small Business Commissioner. The consultation will look into whether the Commissioner should have greater powers to start investigations into poor practices among payers. The Commissioner will also get powers to take action against companies found to have poor payments practices, including court orders, fines and instituting compulsory payment plans. According to the government, these new powers should help larger businesses improve their compliance on paying their smaller counterparts on time.

The government has also set out measures it plans to bring in to help put an end to late payments.

The Prompt Payment Code will get a makeover, and will be administered by the Small Business Commissioner for the first time. The code was launched in 2017 and is signed up to by some of the biggest employers. It's designed to help smaller companies get paid on time by setting out best practice and standards around payments.

The government has also hinted that it's prepared to take tougher action against those who aren't toeing the line on reporting their payment practices. The BEIS said those organisations that don't comply with the Payment Practices Reporting Duty, which obliges companies to publish six-monthly reports on their payment practices, could find themselves on the receiving end of fines and prosecutions.

Other measures on the government's agenda include launching a £1 million competition to boost uptake of payment technology among SMEs, with the aim of cutting the time they spend chasing their late payers. The government is also looking to encourage the development of a supply-chain finance best-practice standard to speed up payments, and improve the transparency of how supply chain finance gets reported in company accounts.

The plans have received broad approval from industry, especially around the introduction of enforcement measures that aimed at deterring larger companies from paying their smaller suppliers late. The FSB, for example, welcomed the move to force audit committees to share their payment practices in annual reports, describing the proposed package of measures as a "victory for small businesses".

However, there has been calls for the government to go further and take even greater steps to help stamp out late payments, including establishing tighter parameters on what constitutes a 'late payment' or 'unfair payment practice', and setting out the levels of fines that habitual late payers can expect. Others have called for the Prompt Payment Code, currently a voluntary scheme, to become mandatory among larger businesses.

The construction industry in particular has called for stronger measures to stamp out the culture of delaying payments to SMEs, asking the government to halve the maximum payment terms suppliers can use from 60 days to 30.

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How the government is tackling late payments
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