The UK government has announced a new Fair Payment Code to tackle late payments that are costing SMEs.
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The Fair payment code will replace the Prompt Payment Code by shining a light on how larger companies treat small businesses and recognizing those who support small businesses. Research by the Ministry of Economy and Trade indicates that there are problems within the supply chain leading to late payments and administrative errors leading to delays.
SMEs lose an average of £22,000 per year due to late payments, resulting in 50,000 business closures per year. Labour’s new legislation will make larger companies responsible for maintaining cash flow and require them to include payment reports in their annual reports to mitigate mistreatment of smaller businesses.
Business Secretary Jonathan Reynolds said: “Late payments are simply unacceptable and this government is determined to level the playing field for small businesses.” When cash flow dries up, small businesses go under. That’s why we need to hold larger companies accountable for their payment practices and foster an environment that supports growth and jobs.”
The new rules will be introduced in the coming months and are intended to curb poor payment practices and support innovation and growth for SMEs. The Federation of Small Businesses said late payments are a major challenge for small businesses: 52% suffer from late payments per quarter, which equates to about 2.6 million businesses.
Prime Minister Keir Starmer commented: “We are committed to supporting small businesses by removing the barriers they face to growth, and eliminating late payments is at the heart of this.” We know how important it is for business owners to have peace of mind and peace of mind when it comes to their cash flow to keep their company alive. Late payments cost businesses tens of thousands of pounds and are one of the main reasons businesses fail.
“After years of delays, we are moving forward on measures that small businesses have long been demanding to address late payments once and for all.”
Small Business Minister Gareth Thomas added: “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 to help SMEs thrive and contributes to the growth of our economy.”
Paul Stoddart, President of GoCardless, commented: “Cutting late payments through the measures set out by the Government will lead to economic growth. This will foster an environment that allows small businesses to thrive, invest in new employees, increase wages and do business abroad, rather than spending time and resources chasing late payments.”