Large businesses could be fined for failing to pay smaller suppliers on time as part of a package of welcome measures launched by the government earlier this month.
It means that company boards will be held accountable for their payment practices for first time.
The Small Business Commissioner has been given new powers to tackle late payments – including fines and binding payment plans.
The Prompt Payment Code has also been strengthened and a new fund has been set up to encourage businesses to use technology to simplify invoicing, payment and credit management.
Announcing the moves, Minister for small business Kelly Tolhurst said: “These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly – ending the unacceptable culture of late payment.”
The measures are to be welcomed and some would say long overdue, though it remains to be seen the size of the impact they will actually make.
And once again it is important to stress these measures are looking to tackle a huge problem. Late payments are currently estimated to cost UK SMEs a staggering £6.7billion annually.
Behind that figure are stories of individual businesses put under serious pressure. Small companies are paid late it causes financial hardship and puts a break on growth. For some it can be the tipping point that leads to them going out of business.
The Blackpool-based Federation of Small Businesses (FSB) has welcomed the crackdown on bigger businesses which have poor payment practices towards their smaller suppliers and contractors.
Its national chairman Mike Cherry said: “Late payments and poor practices are a scourge which leads to the closure of 50,000 small businesses a year. The measures will for the first time see the culprits brought to account.
“When small firms are paid late, it causes financial hardship and stifles growth.”
And he added: “By forcing audit committees of big businesses to report payment practices in company annual reports, there will be no more covering-up by those who treat smaller suppliers shabbily.
“Ending late payments and poor practices is not only the right and fair thing to do, it will also spare small firms the financial impact of waiting for the money they’re owed, and instead allow them to invest and grow.”
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