New package of measures aimed at tackling scourge of late payments

• New Fair Payment Code and fresh rules on company reporting and major consultation unveiled as part of package to tackle late payments
• Scourge of late payments costs SMEs £22,000 a year with 56 million hours of lost productivity, according to Intuit Quickbooks, across the economy – acting as a major brake on growth
• Comes as Business Secretary set to visit food and drink businesses in Manchester struggling with late payments

The government has unveiled new measures today to support small businesses and the self-employed by tackling the scourge of late payments, which according to the Smart Data Foundry is costing SMEs £22,000 a year on average and according to FSB research, leads to 50,000 business closures a year.

The government will consult on tough new laws which will hold larger firms to account and get cash flowing back into businesses – helping deliver our mission to grow the economy.

In addition, new legislation being brought in the coming weeks will require all large businesses to include payment reporting in their annual reports - putting the onus on them to provide clarity in their annual reports about how they treat small firms. This will mean company boards and international investors will be able to see how firms are operating.

Enforcement will also be stepped up on the existing late payment performance reporting regulations which require large companies to report their payment performance twice yearly on GOV.UK.

Under current laws, responsible directors at non-compliant companies who don’t report their payment practices could face criminal prosecutions including potentially unlimited fines and criminal records.  

The consultation which will be launched in the coming months, will also consider a range of further policy measures that could help address poor payment practices.

FSB research shows that every quarter in 2022, 52% of SMEs small firms in the UK suffer from late payments, meaning roughly 2.8 million small firms face this issue, with the Federation of Small Businesses describing it as one of the biggest problems facing SMEs.

Late payments are just one element of the problem, with some SMEs forced to wait months for contracts to be fulfilled and some are even forced to take out loans against their own homes to manage cash flow.

Cracking down on late payments will unlock growth for 5.5 million small firms by enabling them to invest their time hiring more employees, boosting wages, and exporting around the world, rather than chasing down late payments.

The Business Secretary will hold a joint call with the Federation of Small Businesses later today to outline to SME leaders the work the Department will undertake to put in place tough new laws to end bad payment culture. New proposals, subject to consultation, will be bought forward on audit and audit committees, in order to help rebuild small businesses’ trust that they will be paid on time and to deliver on Labour’s manifesto commitment to tackle late payments.  

Pictured: Business Secretary Jonathan Reynolds in Manchester with small businesses

ICSM's Ian Carrotte comments: 

The Department for Business and Trade’s consultation on addressing late payment is of course welcome – and I urge SMEs in particular to respond to their request for ideas on how to tackle the problem. At ICSM we have the full spectrum of British businesses as members from groceries to logistics companies, and from manufacturers to sole traders - and without exception late payment is an issue for them all.

Those of us of a certain age will recall in 1996 the Deputy Prime Minister Michael Heseltine boasting that his company paid suppliers late - which flew in the face of Government policy back then. Since those ill-judged remarks successive administrations have tried to tighten legislation to improve payment culture – without too much success. You only have to look at the likes of Carillion who made it part of an agreement with suppliers that they would have to wait for up to 120 days to get paid. And Carillion held a number of local authority and Government contracts before going bust and owing millions to suppliers.

Late payment is a curse and can send firms to the wall since their cash flow dries up if they rely on a small number of clients who pay late. We have seen so many businesses fail due to either a large bad debt, late payment which increases costs, or they simply give up and close the business, as too many sleepless nights can cause the owner unbearable stress. I’ve known small business owners who have had enough of chasing late payment and who have had their lenders putting pressure on them while they try to pay their own suppliers. They lie awake at night wondering how they will pay their staff or settle an overdue invoice and think ‘this is not worth it’. So, anything from the Government that changes the culture of late payment by giving suppliers more legal leverage to get paid on time is welcome. And it is about business culture as in some sectors prompt payment is normal.

Charging interest on late payment has helped with the Late Payment of Commercial Debts (Interest) Act 1998 as well as charging a firm for court costs but sadly if the customer doesn’t want to pay it can become more trouble than it's worth and many businesses will write off a debt as a result. We always tell members to stick to their credit terms so if a new customer is engaged then it is wise to get them to agree in writing to your terms.  

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Struggling with Late Payers or Bad Debt?

ICSM offers expert credit management and debt recovery solutions that help businesses like yours get paid fast.

• Free online suite of legal letters and final demands
• Specialist team ready to recover unpaid invoices
• Polite, professional mediation to preserve customer relationships
• Hardline legal options when needed
• Late payment interest, compensation, and fees recovered under the Late Payment of Commercial Debts Regulations 2002

Why Act Early?
Passing overdue accounts to ICSM early increases your chances of full recovery. Our multi-channel approach—calls, emails, and letters—ensures the right message reaches the right people at the right time.
We understand that non-payment often stems from miscommunication. That’s why we focus on resolving issues while protecting your reputation.

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