In a bid to tackle problematic late payments, that are costing small businesses around £22,000 a year and leading to thousands of business closures, the Government has launched the Fair Payments Code[1].
The code introduces a system (gold, silver or bronze) that can be used to identify business partners who have made themselves accountable to pay fairly, and within certain time limits.
Businesses will need to prove they have met good payment standards before being awarded official code status.
The three tiers operate as follows:
- Gold – businesses paying at least 95% of all invoices within 30 days
- Silver – businesses paying at least 95% of all invoices within 60 days, including at least 95% of invoices to small businesses within 30 days
- Bronze – businesses paying at least 95% of invoices within 60 days
Businesses that are granted one of the awards, which last for two years, also agree to abide by the principles in the Code of being “Clear, Fair and Collaborative” with their suppliers.
The Government has also promised that there will be a robust complaint system available, so that those not meeting their obligations can be reported.
Knowing exactly how to deal with late payments, and how to protect your business against the ill-effects associated with outstanding invoices, can be a minefield; however, with the right practical support and advice, you can improve how quickly your business gets paid.
Electronic invoicing – benefits for businesses
As part of a series of announcements made in recent weeks by the Chancellor, the government has plans to encourage greater use of electronic invoicing (e-invoicing).
HM Revenue and Customs (HMRC) intends to launch a consultation in early 2025 on the wider use of e-invoicing, with the goal of simplifying business transactions and reducing administrative burdens but perhaps especially, reducing errors in tax returns so that HMRC can ‘close the tax gap’.
While e-invoicing clearly has advantages for HMRC, it is also fair to say that it can benefit businesses too, particularly in respect of late payments.
Improved cash flow: E-invoicing accelerates payment times by automating the invoice approval process, making it easier for businesses to receive payments quickly.
Reduced errors: Automated processes can help minimise the risks of manual entry errors in invoices, which can lead to payment delays or disputes.
Increased productivity: With fewer administrative tasks, businesses can save time and focus on other essential areas, such as growth and customer service.
Tax compliance: E-invoicing can help businesses keep accurate tax records, making it easier to complete tax returns and avoid discrepancies that may lead to penalties.
How could you take advantage of e-invoicing?
While the consultation is yet to launch, you might want to consider how e-invoicing could benefit your business in the meantime.
Many software providers offer affordable solutions, tailored to SMEs, that work with your existing accounting systems, and you may find that your existing software can do e-invoicing for you.
If you need support to explore your options, or if you need help with setting up your accounting software, and e-invoicing, please contact us and we will be happy to discuss your requirements.
