{"id":12844,"date":"2024-09-28T05:43:06","date_gmt":"2024-09-28T04:43:06","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=12844"},"modified":"2024-10-03T09:42:07","modified_gmt":"2024-10-03T08:42:07","slug":"take-action-on-late-payments-to-small-businesses","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/take-action-on-late-payments-to-small-businesses\/","title":{"rendered":"UK government to take action on late payments to small businesses"},"content":{"rendered":"

The UK government has announced some plans to deliver on the labour manifesto pledge<\/a> to \u201ctake action on late payments to ensure small businesses and the self-employed are paid on time.\u201d<\/p>\n

According to the Federation of Small Businesses’ (FSB) research, late payments are one of small businesses’ greatest challenges. When invoices are delayed, a business\u2019s cash flow is threatened, and it resorts to other measures to keep afloat, such as taking on expensive debt.<\/p>\n

By addressing this issue, the government is acknowledging the critical role that timely payments play in the survival and growth of the UK\u2019s 5.51 million small enterprises.<\/p>\n

How the government will crack down on late payments<\/h3>\n

In a press release on 19 September 2024<\/a>, the government announced that it will begin a consultation to introduce tougher laws that hold larger companies more accountable for paying on time.<\/p>\n

This includes new legislation requiring all large businesses to include reports of their payments in their annual reports. This is intended to come into effect in the coming weeks. More details, including instructions on how to conduct this reporting, could be announced in the upcoming Budget announcement on 30 October.<\/p>\n

Making payment reporting mandatory will mean company boards and international investors will have full transparency over whether firms treat smaller businesses and suppliers fairly. This should pressure them to maintain a good reputation by paying punctually.<\/p>\n

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The government also says it plans to improve its enforcement of the existing late payment performance reporting regulations. Under current laws, responsible directors who don\u2019t report their payment practices could face criminal prosecution, including potentially unlimited fines and criminal records. How exactly the government will step up this enforcement currently remains unknown.<\/p>\n

These changes mark initial steps towards a slightly fairer playing field for smaller businesses. Knowing that larger companies are being held accountable may encourage better business practices and foster more reliable partnerships.<\/p>\n

Why are late payments such an issue for small businesses?<\/h3>\n

Put simply, when small businesses don\u2019t receive payment for their products or services when they expect it, it creates a gap in their cash flow. This can disrupt their planning and create a domino effect on other businesses, where they also cannot pay their suppliers and bills.<\/p>\n

According to data from accounting software company FreeAgent, nearly half (49%) of invoices sent by UK small businesses in the past year were paid late. And this problem is getting worse. The current late payment rate of 49% is a six-percentage-point increase from the same period last year (43% in 2022\/23).<\/p>\n

How to deal with unpaid invoices<\/span><\/a>\n Why you should run company credit checks<\/span><\/a>\n <\/p>\n

“Maintaining a healthy cash flow is the number one priority for anyone running a business” says Roan Lavery, CEO and co-founder of FreeAgent. \u201cHowever, the vast majority of small businesses simply don’t have the luxury of being able to absorb late payments into their accounts – they need to get paid promptly to keep themselves afloat.\u201d<\/p>\n

The government\u2019s press release stated that some small business owners, forced to wait months for contracts to be fulfilled, have had to take out loans against their own homes to manage cash flow.<\/p>\n

The cost of late payments on UK small businesses<\/h3>\n

Another accounting software company, QuickBooks, used its data to calculate the amount small businesses were owed from unpaid invoices in September 2023.<\/p>\n