The current hot topic
Late payment crackdown
The late payment of invoices has been a longstanding bugbear for the UK’s SME businesses as well as the self-employed. Late payments are significant barrier to growth while many owners and managers are forced to spend disproportionate time chasing payments. This results in cashflow problems causing many to struggle.
Now, the government is taking tougher measures to tackle the issue of late payments in its Small Business Plan. Here, we take a look at the problem of late payments and assess the government’s response.
Legislative reform
The government is set to tackle late payments to businesses with significant legislative reforms.
Late payments cost the UK economy £11 billion a year and shut down 38 businesses every day, according to the government.
The new laws are set to give stronger powers to the Small Business Commissioner to empower them to wield fines, worth potentially millions of pounds, against the biggest firms who persistently choose to pay their suppliers late.
Spot checks
The Small Business Commissioner will be given new powers to carry out spot checks and enforce a 30-day invoice verification period to speed up resolutions to disputes. The upcoming legislation will also introduce maximum payment terms of 60 days, reducing to 45 days, giving firms certainty they’ll be paid on time.
Under the proposals, audit committees will also be legally required to scrutinise payment practices at board level, placing greater pressure on large firms to show they’re treating small suppliers fairly backed by mandatory interest charges for those who pay late.
The government says these changes will save small businesses valuable time, freeing up hours currently spent chasing overdue invoices so they can focus on growing their business instead.
Unleash their potential
Business and Trade Secretary Jonathan Reynolds said: ’This country is home to some of the brightest entrepreneurs and innovative businesses in the world, and we want to unleash their full potential by giving them back time and money to do what they do best - growing our local economies.
‘Our Small Business plan – the first in over a decade – is slashing unnecessary admin costs, making it easier for businesses to set up shop and giving SMEs the financial backing they need.
‘This is our Plan for Change in action, putting more money in people’s pockets, boosting local communities and ensuring Britain is a great place to do business and thrive.’
Conditions to succeed
Trade bodies representing small businesses and the self-employed welcomed the new legislation and hailed the positive impact it could make on their members.
Tina McKenzie, Policy Chair of the Federation of Small Businesses (FSB) said: ‘Making sure businesses are paid on time, that our high streets thrive, and creating conditions in which everyone can start and succeed in business are crucial priorities for small businesses, communities and the economy.
‘I’m pleased that FSB and the government have been able to work in lockstep on the bold and ambitious measures needed to tackle the scourge of late payment through legislation, and other pro-growth, pro-small business measures.’
Landmark moment
The UK’s self-employed trade body, IPSE, welcomed the new government proposals to legally cap payment terms to small businesses, calling it ‘landmark moment’ that could protect thousands of freelancers from going under.
IPSE says that late payment is one of the most pressing issues facing freelancers and self-employed business owners. IPSE has previously called for a statutory ceiling on payment terms to freelancers.
Level the playing field
Vicks Rodwell, Managing Director at IPSE - The Self-Employed Association, said: ‘We’ve long called for a legal payment deadline, so this is a landmark moment that could help level the playing field for freelancers.
‘Late payments can force freelancers out of business, but obscenely long payment terms for work can put just as much of a strain on the self-employed.
‘It’s not right that freelancers can fall behind on their own bills – or even into debt – while their clients sit on money for months at a time.
‘By clamping down on late invoices and limiting long payment terms, the government can tear down one of the biggest barriers to growth for freelancers and sole traders.’
Cashflow pressure
Late payments can put business finances under severe pressure. If you need advice on improving your cashflow please contact us.