Thousands of working days lost due to late payments

Thousands of working days lost due to late payments

The government has advised that they plan to clamp down on late payments which are costing small businesses up to £22,000 a year, which is leading to up to 50,000 business collapses annually.

New legislation being considered will require ‘large’ businesses to include payment reporting in their annual reports, to provide transparency when they are late with payments but details on the full range of measures is limited as no policy paper has been issued yet.

The Department for Business and Trade (DBT) has said it will consult on tougher regulations which will hold larger firms to account and get cash flowing back into businesses, particularly benefiting small businesses and the self-employed. It is thought that up to 56m working hours – equivalent 2.3m working days – are lost annually due to late payments of invoices which the DBT says is ‘acting as a major brake on growth.’

Larger companies with a poor late payment performance could be targeted by ‘stepped up’ enforcement by having to report their payment performance twice a year. This will come into fruition ‘in the coming months’ but it is thought the DBT will also be looking into further policy measures.

Directors of companies that do not comply will also be held accountable for persistently paying invoices late, which could result in prosecution, and a fine.

The previous Conservative government had been in the midst of passing legislation to bring in mandatory reporting for large businesses and LLPs. Under the Reporting on Payment Practices and Performance (Amendment) Regulations 2024, new reporting requirements were due to be introduced for companies in scope of the reporting requirement and these new requirements were meant to apply in relation to each financial year of a company beginning on or after 1 January 2025.

It is not clear whether the Labour government still intends to pass this statutory instrument.

Currently, company directors of companies not complying can be held accountable, leading to a criminal record and a fine of an unlimited amount.

The government is looking to introduce a new Fair Payment Code to replace the Prompt Payment Code. This will be open to signatories this autumn. Businesses will need to prove they have met good payment standards before being awarded official code status, and it will have a categorisation of gold, silver or bronze status. 

Each quarter 52% of small firms are impacted by late payments, which equates to 2.6m businesses. This problem is one of the biggest issues currently facing SMEs.

The DBT has stated that some small businesses have had to take loans against their property when invoices are unpaid for months. These changes could help 5.5m firms and their staff as cash flow issues should begin to reduce.

On average UK businesses are paying their suppliers 26 days late in 2024, this has increased from 2023 when the average was 22 days.