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The UK government is set to introduce new legislation aimed at tackling late payments, replacing the Prompt Payment Code with a stronger Fair Payment Code. This move is intended to address how larger businesses treat smaller companies, while rewarding those that support small and medium-sized enterprises (SMEs). According to research by the Department of Business and Trade, issues within the supply chain and administrative errors are major contributors to late payments, causing significant delays.
SMEs lose an average of £22,000 annually due to late payments, contributing to the closure of 50,000 businesses each year. The new legislation, proposed by Labour, will hold larger companies accountable for maintaining healthy cash flow and require them to include payment reporting in their annual financial statements. This is intended to protect smaller businesses from mistreatment and ensure they are paid on time.
Business Secretary Jonathan Reynolds emphasized the urgent need for action. “Late payments are simply unacceptable, and this government is determined to level the playing field for small businesses. When cash flow dries up, small firms can quickly go under. That’s why we must hold larger businesses to account for their payment practices and create an environment that fosters growth and jobs,” Reynolds stated.
The new regulations, expected to be launched in the coming months, are designed to curb bad payment practices and encourage innovation and growth among SMEs. The Federation of Small Businesses (FSB) noted that late payments remain a significant challenge for small companies, with 52% of SMEs—around 2.6 million firms—reporting they suffer from late payments each quarter.
Prime Minister Keir Starmer reinforced the government’s commitment to backing small businesses. “We are determined to unlock the barriers to growth for small businesses, and addressing late payments is a key part of this effort. Business owners need peace of mind and certainty around their cash flow to keep their enterprises afloat. Late payments cost businesses tens of thousands of pounds and are one of the biggest reasons for business collapse,” Starmer said.
“After years of delay, we are finally bringing forward the measures small businesses have long been calling for to tackle late payments once and for all,” he added.
Small Business Minister Gareth Thomas echoed these sentiments, stressing the importance of timely payments. “Small businesses deserve to be paid on time, it’s as simple as that. I’m optimistic that today’s first big step will help pave the way for real change that supports SMEs, allowing them to thrive and contribute to the growth of our economy,” Thomas said.
Industry leaders have also voiced their support for the initiative. Paul Stoddart, President of GoCardless, praised the government’s efforts to crack down on late payments, stating that these measures would lead to economic growth. “By addressing the issue of late payments, the government is fostering an environment where small businesses can thrive. This will allow them to invest in new employees, raise wages, and expand overseas, instead of wasting valuable time and resources chasing down overdue payments,” Stoddart commented.
The upcoming legislation aims to create a fairer business environment for SMEs, ensuring they receive timely payments, which are essential for their survival and growth. With these new rules, the UK government is taking a significant step toward addressing a longstanding issue that has hampered small business growth for years.
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