Late payments a ‘rising challenge’ for businesses
Despite there being optimism on the horizon with the government announcing its roadmap to reopen the UK economy, the issue of late payments continues to affect businesses.
The latest Business Confidence Monitor (BCM) by the Institute of Chartered Accountants in England and Wales (ICAEW) reports that for the second quarter running, 32% of companies described late payments as a ‘rising challenge’.
Small businesses account for two-thirds of UK private sector employment and more than half of business turnover. They are particularly vulnerable when it comes to late payments as they impact their bottom line, which can hold back investment or job creation and, in the worst cases, lead to job losses and business closures.
The Federation of Small Businesses (FSB) estimates that 50,000 businesses close every year due to late payments.
The government recently announced an overhaul of its Prompt Payment Code (PPC) in an attempt to crack down on delayed invoices owned to small businesses.
Under the government reforms:
- companies that have signed up to the Prompt Payment Code will be obliged to pay small businesses within 30 days
- failure to do so may result in an investigation by administrators of the Code
- suppliers will be entitled to charge interest on late payments
- breaches will continue to be publicised by the government to encourage compliance
Small Business Minister Paul Scully said: "We are relieving some of the pressure on small business owners by introducing significant reforms to the UK payments regime – pushing big businesses to pay their suppliers on time.”
The announcement comes as the government seeks to strengthen the Small Business Commissioner (SBC) powers to ensure larger companies pay their smaller partners on time. New powers proposed in a recently closed consultation included legally binding payment orders, launching investigations and levying fines.
Interim Small Business Commissioner Philip King said: "Late payment causes real hardship to small businesses, and the issue is more prevalent than ever due to the continued impact of the pandemic. Code signatories of all sizes demonstrate their commitment to ending the culture of late payment and helping to increase business confidence.”
FSB National Chairman Mike Cherry added: "A late payment crisis was massively stifling the UK economy before COVID hit. The pandemic has deepened it.
"It's good to see the progress announced by BEIS and especially the outgoing Small Business Commissioner that has driven this agenda. It's now time for swift delivery and for all existing and future PPC signatories to implement 30 days as the new maximum."
The changes to the Code sit alongside a consultation on the powers of the Small Business Commissioner, which closed on 24 December 2020.
At UMi, we understand that dealing with late payments is hard and so we have put together an informative tool sheet with advice and tools to make it easier – leaving you more time and energy for you and your business to do more and go further.