THE UK Government has unveiled what it says is the ‘largest set of reforms in over a generation’ as it looks to ensure small businesses are paid on time.
The Small Business Commissioner will be given new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders – with fines worth tens of millions for firms that persistently pay late or fail to comply with the new laws.
The changes will include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.
For example, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest (£10,000 plus £193.15 interest plus £100 compensation).
The government will also propose to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms losing retentions to insolvency or non-payment.
The measures will look to tackle a problem costing the UK economy £11 billion every year and ease the cost of living for entrepreneurs and SME owners who are often forced to wait months – or even years – to receive money they have already earned and having to chase endlessly to receive it.
Some 38 businesses shut their doors every single day because they are not paid on time – the equivalent of 266 a week, and well over a thousand in any given month, the UK Government said.
UK Government business secretary Peter Kyle said, “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.
“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”
After working closely with the Federation of Small Businesses (FSB), boards or audit committees of persistently late-paying large companies will be required to publish explanations for poor payment performance and the actions they are taking to address it.
FSB policy chair Tina McKenzie added, “Late payments are a blight on our economy, so FSB is pleased to have worked in partnership with the Government to deliver the toughest legislation in the G7. The new laws will finally bring a stop to big businesses using their small suppliers as sources of free credit.
“For the first time, audit committees and boards will question and challenge poor payment performance, publish it in annual reports for all to see, and put it right. Paying in 60 days is not prompt – but strengthening that as the absolute maximum cap after years of dithering is a good step towards encouraging payments in 30 days across all supply chains. Improving the Small Business Commissioner’s powers will also help, mandating CEO’s of Britain’s poor payers to take the phone call.
“This is real progress, and we’ll keep working with the hovernment to make sure new laws are brought in as soon as possible.”
Debbie Williams, co-founder of John Williams Heating Services, commented, “As a family-run business that has served our community for more than 20 years, we see first-hand the strain that late payments place on small companies. Cashflow pressures don’t just affect the balance sheet — they impact our ability to take on apprentices, invest in training and continue providing reliable service to local families.
“We welcome the Government’s focus on tackling late payments, as timely and fair payment practices are essential for the stability and growth of businesses like ours.”
