A new Fair Payment Code has been introduced by the UK government to address the issue of late payments affecting SMEs. This code will replace the existing Prompt Payment Code, focusing on how larger businesses interact with smaller companies and recognizing those that support small firms. According to research from the Department of Business and Trade, supply chain issues and administrative errors contribute to delays in payments.
On average, SMEs lose £22,000 annually due to late payments, contributing to approximately 50,000 business closures each year. The new legislation will impose accountability on larger companies for their cash flow practices and mandate the inclusion of payment reporting in their annual reports, aiming to prevent the mistreatment of smaller enterprises.
Business Secretary Jonathan Reynolds emphasized the importance of this initiative, stating, “Late payments are simply unacceptable, and this government is determined to level the playing field for small businesses. When cash flow runs dry, small firms go under, which is why we need to hold larger businesses accountable for their payment practices and create an environment that fosters growth and jobs.”
The forthcoming regulations will aim to curb bad payment practices while promoting innovation and growth for SMEs. The Federation of Small Businesses highlights that 52% of small firms experience late payments each quarter, impacting about 2.6 million businesses.
Prime Minister Keir Starmer remarked: “We’re determined to back small businesses by removing barriers to growth, with addressing late payments being a key focus. It’s vital for business owners to have certainty around their cash flow to keep their businesses viable. Late payments can cost businesses tens of thousands of pounds and are among the leading causes of business failures.”
Small Business Minister Gareth Thomas expressed optimism about the new measures, stating, “Small businesses deserve to be paid on time, it’s as simple as that. I believe this initial step will help create real change that supports SMEs and strengthens our economy.”
Paul Stoddart, president of GoCardless, commented, “Addressing late payments through the government’s proposed measures will foster economic growth, enabling small businesses to flourish, invest in new employees, increase wages, and engage in international trade instead of dedicating time and resources to chase overdue payments.”