Tackling Late Payments in the UK: A New Era for Suppliers

The New Legislation

In a significant move set to reshape the landscape of business transactions, the UK government has unveiled plans aimed at tackling the pervasive issue of late payments to suppliers. Prime Minister Sir Keir Starmer emphasized that “it’s time to pay up”, highlighting the impact of late payments on the economy, which costs the UK approximately £11 billion annually and leads to the closure of 38 businesses every day.

Under the proposed legislation, companies that consistently pay their suppliers late may face substantial fines, potentially amounting to millions of pounds. This initiative aims to empower the small business commissioner with the authority to penalise large firms that fail to adhere to timely payment practices.

Key aspects of the new rules include:

• Payment Terms: Businesses will be mandated to settle invoices within 30 days of receipt, unless an alternative agreement is in place.
• Maximum Payment Days: The legislation will introduce maximum payment terms of 60 days, which will be gradually reduced to 45 days.
• Enforcement: Spot checks will be conducted to identify any violations of these payment terms.

Impact on Small Businesses

The government argues that these changes will alleviate the burdens faced by small and medium-sized enterprises (SMEs), allowing them to focus on growth rather than chasing payments. Sir Keir stated, “Too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best—growing their businesses.”

This legislative framework is part of a broader Small Business Plan that aims to provide the necessary support and stability for UK businesses to thrive, stimulating overall economic growth.

Wider Government Support

In conjunction with the crackdown on late payments, the government is set to inject £4 billion into small business start-ups and growth initiatives. This funding package will include £1 billion designated for new firms, along with 69,000 start-up loans and mentoring support.

Response from the Opposition

While the initiative has garnered general support, critics argue that it does not address the wider economic challenges, such as the 218,000 businesses that have closed under the current administration. Opposition figures, including Andrew Griffith, the Tory shadow business secretary, cite increased business rates and taxation as stumbling blocks for enterprises looking to thrive.

Conclusion

As the UK moves towards stricter regulations on payment practices, the forthcoming legislation represents a significant step toward safeguarding the interests of suppliers. This change could prove crucial in ensuring that small businesses receive timely payments, fostering an environment where they can flourish and contribute positively to the economy.