We look at the new changes coming into force that could help reduce the burden of late payments on small businesses…
Measures are being introduced to tackle the poor payment culture in the UK that is costing the economy billions and is having a damaging effect on smaller businesses.
What are the new regulations?
The measures – put forward by Small Business Minister, Margot James – aim to boost transparency in payment practices to help small and medium sized business (SMEs).
Under the regulations, large companies and limited liability partnerships (LLPs) must publically report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices.
It will be a criminal offence if these companies fail to report.
The Department for Business, Energy & Industrial Strategy has released a guide to prepare large businesses and limited liability partnerships for the new regulations, which come into force in April 2017.
Also, in a bid to improve standards, a Small Business Commissioner will be appointed to support small businesses in resolving payment disputes. The Commissioner’s office is expected to be up and running later in the year.
The cost of late payments
Late payments costs for small businesses are huge. A report from payment processor Bacs shows that nearly half of the UK’s SMEs experience late payments.
In total, SMEs are owed £26.3 billion in overdue payments.
This can be crippling for smaller businesses with many experiencing cash flow problems or having to take out overdrafts to make up the missing money.
According to a report published by the Federation of Small Businesses (FSB), 20% of SMEs experience a slowdown in profit growth as a direct result of late payments.
These cash flow problems can prevent smaller companies innovating and expanding – and can even force businesses to close.
How will the new rules help?
With the new information, a smaller business will be able to make an informed decision about the companies it does business with, avoiding those which often default on payments.
“We welcome this as an important tool to change a UK business culture where it is deemed acceptable to pay small firms late,” says Mike Cherry, National Chairman at the FSB.
“We estimate that if payments were made promptly, 50,000 business deaths could be avoided every year, adding £2.5 billion to the UK economy.”