The government plans a major review into tackling late payments for small businesses, with £23.4bn currently owed in outstanding invoices
The payment and cash flow review will scrutinise existing payment practices and the measures in place to make sure small firms are not ripped off by their larger clients.
With over £23.4bn currently owed in late invoice payments, many small businesses continue to spend significant time and resources chasing late payments from the businesses they supply, with some taking several months before paying their suppliers.
Such delays can lead to cash flow problems for many small businesses, alongside hampering business growth, as they do not have the money to buy inventory stock, equipment, or invest in their future.
This remains the case for the majority of small businesses that do not have large balance sheets and cannot accommodate long payment terms or delays.
At the moment there is no legal obligation to pay small businesses quickly with only a voluntary prompt payment code.
The review will consider recommendations regarding the role of government in influencing a ‘stronger culture’ of responsibility within larger businesses regarding payments to small suppliers.
It will also address the role of technology-enabled accountancy platforms in tackling late payments as well as how banks and lenders can help small businesses manage their cashflow effectively.
Business secretary Grant Shapps said: ‘The UK’s 5.5 million small businesses are an integral part not just of our economy, but of our communities too.
‘That many small firms are routinely paid late is intolerable and presents a real barrier to productivity, the creation of high-skilled jobs and ultimately economic growth.
‘This review will allow us to build on the success we have had so far in curbing late payment, unshackling small businesses from this exploitative practice and creating a system that is fit for the future.’
This rule will be included in the Procurement Bill, which is currently being debated in parliament. This sets out a requirement for large firms to pay smaller suppliers within 30 days to help ‘level the playing field’ for SMEs.
Cashflow issues continue for many of the UK’s smallest businesses, as the combination of economic factors and rising costs in energy bills and wages continue to squeeze their finances.
Small business commissioner Liz Barclay warned that businesses need to understand the consequences of their actions, as some continue to extend their payment terms.
Such delays can place disproportionate cashflow pressures on small firms, leaving many to struggle to stay afloat.
The review will also examine existing government levers, such as the Prompt Payment Code, where businesses voluntarily sign up to commit to paying suppliers promptly.
Despite almost 3,000 companies signing up, poor payment practices still continue, with many payments delayed well beyond the current 60-day target required for 95% of invoices.
The review will be led by Kevin Hollinrake, minister for enterprise, markets and small business, who said: ‘I know the joy and freedoms of owning and running your own business, but I also know what it’s like to lay awake at night and worry about paying the bills.
‘It’s a difficult time for small businesses, there’s no doubt, with the current economic landscape.
‘We’ve got a real opportunity to boost the wider environment for SMEs and make it easier to start up and scale up; one of the biggest challenges we absolutely know is getting paid on time.’
If you have questions on managing the effect of late payments, visit BrAInbox today where you can find answers to questions like How do I change the frequency of wage payments from weekly to monthly?
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