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UK measures to ensure small businesses get paid on time

For the first time large businesses in the UK could be fined for failing to pay smaller suppliers on time as part of a robust package of measures unveiled by Small Business Minister Kelly Tolhurst. Company boards will now be held accountable for payment practices to small businesses within their companies in a drive to increase transparency and accountability on late payments. Measures will force audit committees to report payment practices in company annual reports.

The government will consult on strengthening the powers of the Small Business Commissioner to hold to account the minority of larger businesses who fail to make payments on time. New powers could include compelling information and disclosure of payment terms and practices, imposing financial penalties or binding payment plans on large businesses found to have unfair payment practices.

Responsibility of the voluntary code of best practice – the Prompt Payment Code – will be moved to the Small Business Commissioner. This will put tools to tackle late payment under one organisation, ensuring the Commissioner has the powers to affect culture change in unfair payment practices.

Small Business Minister Kelly Tolhurst said: “The vast majority of businesses pay their bills on time, with the amount owed in late payments halved over the last five years. But as a former small business owner, I know the huge impact a late payment can have on the ability of a small business to plan, invest and grow.

“Small businesses are the backbone of our economy and through our modern Industrial Strategy we want to ensure the UK is the best place to start and grow a business. 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.”

Other proposals include:

A tough new approach to large companies which do not comply with the Payment Practices Reporting Duty – an existing mandatory requirement on large businesses to report payment practice to a national database twice a year. The legislation allows for the prosecution of those which do not comply, and fines may be imposed. The government will consult on giving these powers to the Small Business Commissioner.

A Business Basics Fund competition of up to £1m in funding to encourage businesses to use technology to simplify invoicing, payment and credit management to ensure they work as effectively as possible.

Federation of Small Businesses (FSB) national chairman Mike Cherry said: “Small businesses will be delighted with today’s announcement. FSB has worked very hard with government to create a whole-board approach to late payment within the UK’s large companies, and empower Audit Committees to look after the supply chain. Together with measures to strengthen the Small Business Commissioner’s powers and reform the Prompt Payment Code, the measures today could finally see an end to poor payment practice. Changing our business culture will boost the small business community, productivity and growth.”

Small Business Commissioner Paul Uppal said: “During the first 16 months of my post I have been struck by the trepidation felt by small businesses when talking about late payment with their large suppliers. The government has a range of measures in place to tackle late payment and this consultation is a further step in the right direction to protect and support small businesses. I welcome any additional provisions which will strengthen the influence my Office has in tackling poor payment practice and levelling the existing playing field.”

Chartered Institute of Credit Management Chief Executive Philip King said: “We welcome this announcement and in particular the proposal to bring the Prompt Payment Code under the auspices of the Small Business Commissioner in a managed transition.”

 While welcoming the government’s proposals, Association of Accounting Technicians’ (AAT) Head of Public Affairs & Public Policy Phil Hall said: AAT is very disappointed that despite a wealth of support from businesses across a wide variety of sectors, and the vast majority of MPs, Government has again ducked the opportunity of taking more meaningful action by compelling large employers to sign the Prompt Payment Code and to halve maximum payment terms under the Code from 60 to 30 days.”

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