Government to crackdown on late payments to small businesses and freelancers

Government to crackdown on late payments to small businesses and freelancers 

Late payments cost the UK economy more than £11bn a year and lead to 38 businesses shutting down every day.

Many small businesses, in particular, suffer as a result of long payment terms or slow payment, with some larger companies being notoriously poor when it comes to paying on time.

Small and medium businesses currently employ 60% of the country's workforce and generate £2.8 trillion in turnover, but cash flow can often be a huge challenge forcing many freelancers and business owners to build up debt or postpone growth plans.

It is a problem the Government has now pledged to address via its new Small Business Plan, which also features proposals for 69,000 Start-Up Loans for potential entrepreneurs.

What are the plans?

The Government has heralded the planned new powers as being ‘the toughest laws on late payments in the G7,’ but what is actually being introduced?

The upcoming legislation proposes maximum payment terms of 60 days, subsequently set to be reduced to 45 days. It will also award new powers to the Small Business Commissioner, allowing spot checks to be carried out and the enforcement of a 30-day invoice verification period to speed up resolutions to disputes.

Under the proposals, audit committees will be legally required to scrutinise payment practices at board level with the aim of placing pressure on large companies to demonstrate they are treating suppliers fairly. Mandatory interest charges will be placed on those who pay late.

The aim is not only to ensure small businesses are paid on time but to reduce the amount of time spent chasing payments.

What has been the reaction?

The proposals have been welcomed by those representing small businesses, although the Conservative opposition has said they are a drop in the ocean compared to high business rates.

The Federation of Small Businesses’ Policy Chair, Tina McKenzie, said making sure small businesses are paid on time is crucial for communities and the economy, while the Chartered Institute of Building insisted late payments have plagued the industry and tougher legislation would help create a more stable construction supply chain.

And Vicks Rodwell, Managing Director at the IPSE – The Self-Employed Association, added that the measures would “tear down one of the biggest barriers for growth for freelancers and sole traders”.