New measures, unveiled by Small Business Minister Kelly Tolhurst, could see large firms facing significant fines for failing to pay their small and medium-sized suppliers on time.
Late payments and poor payment practices result in the closure of more than 50,000 small businesses each year, according to the Federation of Small Businesses (FSB), costing the economy roughly £2.5 billion.
In 2018, Britain’s small businesses collectively spent around £6.7bn to collect money they were owed – clearly impeding the plans that organisations might have had, to invest this money elsewhere.
In an attempt to increase transparency, company boards will now be held accountable for supply chain payment practices as opposed to just finance directors.
The new measures will also force audit committees to report payment practices in company annual reports.
The government will consult on intensifying the powers of the Small Business Commissioner, to hold to account the minority of larger businesses who neglect to make payments within the allotted time-frame.
Under the proposals, the Small Business Commissioner could have the power to disclose payment terms and practices, as well as to impose financial penalties or obligatory payment plans on large businesses that are found to have inequitable or late payment practices.
The Small Business Commissioner will also assume responsibility for the voluntary Prompt Payment Code of best practice.
In addition, the government also announced the following:
- A tough approach to large companies which are failing to observe the Payment Practices Reporting Duty – a mandatory requirement on large businesses to report payment practices to a national database, twice a year. The legislation allows for prosecution where businesses do not comply, and fines may be imposed. The government will consult on handing these powers to the Small Business Commissioner.
- A ‘Business Basics Fund’ competition of up to £1m in funding, to encourage businesses to use technology to simplify invoicing, payment and credit management and ultimately to boost productivity.
Small Business Minister, Kelly Tolhurst, said: “These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly – ending the unacceptable culture of late payment.”
The Small Business Commissioner’s Office was set up by government in 2017 to tackle the issue of late payments. To date, it has recovered over £3.8 million and additional powers will hopefully enable it to level the playing field for the UK’s 5.7 million small businesses, delivering on the modern Industrial Strategy’s ambition to make Britain the best place to start and grow a business.
Martin Williams, partner at George Hay, comments: “In business, we are all aware of the phrase ‘Cash is King’; a company may have all the revenue in the world, but without good cash flow it can easily fail which is certainly not good for individuals and the economy overall.
Late payment has long been an issue for small-to-medium sized enterprises, holding them back in respect of growth and making it difficult to compete with larger suppliers and businesses in the marketplace.
It is clear that the consequences of late payment for smaller enterprises do not uphold a strong, fair for all, economy, or a business culture that places importance on good payment practice.
Ending the culture of late payments will pave the way to boost SME productivity, remove barriers to growth and improve cash flow.”
How can George Hay help?
We have many years of experience working with SME’s, across a range of industry sectors, and we understand the impact that an inconsistent stream of income can have on these businesses.
We can help you to take control of your cashflow and drive your business forward. We will work diligently with you, to put a realistic plan together that will cultivate confidence within your business and ultimately facilitate growth.
We also support a range of online accounting and bookkeeping software packages, including Xero, Sage and Kashflow, meaning we can easily take care of your cloud accounting needs.
If you’re concerned about late payment or you’re interested in streamlining some of your processes to improve productivity, contact our team of experts in Cambridgeshire, Bedfordshire or Hertfordshire, today.