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"Goliath meet David": Crack down on late payments in major support package for small businesses

ended 19. September 2024

Overnight, the Government has unveiled new measures to support small businesses and the self-employed by tackling the scourge of late payments, which is costing small businesses £22,000 a year on average and leads to 50,000 business closures a year. The government will consult on tough new laws which will hold larger firms to account and get cash flowing back into businesses – helping deliver our mission to grow the economy.

In addition, new legislation being brought in the coming weeks will require all large businesses to include payment reporting in their annual reports - putting the onus on them to provide clarity in their annual reports about how they treat small firms. This will mean company boards and international investors will be able to see how firms are operating. Enforcement will also be stepped up on the existing late payment performance reporting regulations which require large companies to report their payment performance twice yearly on GOV.UK.

Business Secretary Jonathan Reynolds said: “Late payments are simply unacceptable and this government is determined to level the playing field for small business. When the cashflow runs dry, small firms go under which is why we need to hold larger business to account with their payment practices and foster an environment that supports growth and jobs. Slashing trade barriers, reforming business rates, getting more SMEs exporting – this government is committed to small firms. We know there’s a lot more to be done, but today we are calling time on late payers once and for all.” Newspage asked SMEs for their thoughts, below.

14 responses from the Newspage community

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Patricia McGirr
Founder at Repossession Rescue Network
Late payments are legalised theft. The promise of payment 'some time soon' or protracted payment terms, is immoral and big businesses have for too long been able to hold to ransom small enterprises that are the lifeblood of our economy. The government’s latest move is a step in the right direction, but let’s not sugar-coat it, it's too little, too late for the thousands of businesses already on the brink and it's shameful it's taken this long for real action to be considered.

Late payments aren’t just bad for cashflow, they’re a mental health grenade. They pile on stress, devastate livelihoods, and push people into financial despair. If the government’s serious about ‘levelling up,’ they need accountability with teeth. No more half-hearted measures. Make late payments illegal and enforce penalties that bite big business where it hurts. We need action now, not vague promises of relief someday down the line.
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Ben Foster
CEO at The SEO Works
This is great news, as cash flow is the lifeblood of all small businesses. However, reporting this is only one step and may not lead to much change. Standard payment terms for large corporates should be set to 30 days, with high interest rates enforced for late payments. This would see prompt action for those who sometimes take 90+ days to pay for what they have used.
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Nicolai Thomson
CEO & Cofounder at Jenesys AI
This consultation is overdue and a great example of how regulation should work. For too long small businesses have had it too hard when it comes to late payments. The one warning we would give Government is that forcing big business to reduce the time to pay will potentially lead them to cut corners in their bookkeeping and financial reporting, opening the door to further fraud. Government needs to consider what incentives it also offers big business to adopt AI technology that restores detail and accuracy to their financial reporting.
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Sam Kirk
Managing Director at J-Flex Rubber Products
This will be very welcome news for SMEs, as many are often forced to agree to extended terms larger corporates write into their supply agreements. Enforcement will need to be much better for this to be truly successful though. Without that, little will change.
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Ken James
Director at Contractor Mortgage Services
Goliath meet David. The battle of the small firms versus the mighty, larger ones has been raging since the dawn of time or at least it feels that way when you’re the smaller firm. The larger firms holding the small ones to ransom, picking and choosing when and how to pay. Now the little guys should start to get the fair terms they deserve that will stop them going to the wall, and hopefully payments will begin to start to be paid within a timely fashion. Nowhere else can you have goods and not pay for months on end, so it is good to see the government putting in place a framework that will stop this shoddy practice.
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Simon Bridgland
Director at Charwin Private Clients
This will be music to the ears of so many SME businesses up and down the country. The domineering attitude displayed by larger enterprises has stifled the growth of their smaller counterparts in the past. Thankfully this will help level the playing field for those businesses without deep pockets, no longer waiting months on ends for payments due to them, means they can free up the income they have billed for and give their own businesses a boost when they can and want to, helping boost the economy by boosting their productivity.
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David Stirling
Independent Financial Advisor at Mint Wealth
An interesting move by the government and recognition from the business secretary Jonathan Reynolds that the small guy needs support too. How effective this will be in the David vs Goliath scenario of the business world we wait to see, but this could help smaller businesses cope with the rising taxes and costs across the board. Cash flow is king and too much of it is stemmed by big businesses paying late or on their own ultra-extended terms.
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Ben Perks
Managing Director at Orchard Financial Advisers
This is a helpful initiative that will give a significant boost to small businesses. The pessimist in me wonders if they are just buttering us up before they drop a Corporation Tax bomb next month, though.
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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
The silent killer of SMEs may have finally met its match with the government’s sweeping crackdown on late payments. In a world where cash flow is king, late payments have become the court jesters of small businesses, making the government's planned intervention both timely and crucial. This move could be a game-changer as the UK grapples with underlying economic growth challenges. By addressing the chronic issue of late payments, the government is not just supporting small businesses but potentially unleashing a catalyst for greater investment in the sector. Consequently, improved cash flow for SMEs could lead to increased investment, innovation, and job creation in this vital sector of the economy. However, as always, the success of these measures will largely depend on their implementation and enforcement, and the effectiveness of this increased scrutiny remains to be seen.
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Debbie Porter
Managing Director at Destination Digital Marketing
This is great rhetoric. Would be even better if it turned into a real outcome. Late payments are rife, and there is already legislation in place to combat this, but it is legislation that is taken with a pinch of salt by some firms. Enforcement is costly, and large firms rely on small businesses having to weigh up the price of the chase.
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Graham Cox
Director at Bridging Hub
This is fantastic news for small business owners. For too long, larger businesses have exploited smaller firms with unfair payment terms or simply by delaying payment. It's about time they were held to account. As ever though, the devil will be in the detail. But kudos to Labour for introducing this consultation so early in their first term.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Overdue payment for work you have already done is the bane of many small business owners' lives. I used to have a boss that worked on the basis of not paying any invoices until he was threatened with legal action, apparently, he felt "they didn't really need the money" until that point. I also heard of another business owner who would purposely place large orders with small suppliers, knowing they would use all their resources to fulfil the order, he would then delay paying them in the hope they'd go out of business, then he'd settle with the administrators for pennies on the pound. Any legislation that helps stop these behaviours is to be welcomed. However, I do wonder if the Government will be bound by these rules too. I deal with lots of Barristers, and many have aged debt that can run to years, with the biggest source of late payments being Legal Aid cases, so it will be interesting to see if that is captured within any new rules.
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Tony Robinson
Chair at Yorkshire in Business Limited
As Jonathan Reynolds has said, 'there is a lot more to be done.' This is a step in the right direction and mirrors what was hoped for with the Prompt Payment Code, which requires signatories to pay small firms within 30 days. The Small business Commissioner also does a great job in helping with late payment from lSo it will help stop LATE payment practices from large to small. However, I have been campaigning for 30 years about UNFAIR PAYMENT TERMS (e.g. Carillion) with my #PayIn30Days or less campaign. This issue causes the majority of the £30 billion log jam, resulting in businesses being paid on average in over 60 days, but they have monthly bills to pay. These UNFAIR, 45 to 120 days 'take it or leave it' payment terms can be prevented by the Government saying to the FTSE350 Companies in particular that they will not buy from, take tenders from contract with, license, fund (e.g. furlough) or support in any way any company of any size that does not pay ALL its bills within 30 days.
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Charlotte Laing
Director and founder at The Content Emporium
Cashflow is crucial for small and growing businesses, so a late payment can be a fatal blow. We're really fortunate at The Content Emporium to work with large clients on favourable payment terms, and negotiating these terms has been crucial for us. When you're scaling up, you often need to pay for staff and materials before you get paid, so minimising the gap is really important.