The government is set to introduce tougher regulations to tackle late payments, which cost small businesses up to £22,000 a year and contribute to the collapse of around 50,000 companies annually.
New legislation will require large businesses to report payment practices in their annual reports, and non-compliance will lead to stepped-up enforcement. Directors of companies that persistently delay payments could face prosecution and unlimited fines.
The Department for Business and Trade (DBT) is consulting on additional measures to hold larger firms accountable and improve cashflow for small businesses and the self-employed. Late payments cause the loss of an estimated 56m working hours annually, equivalent to 2.3m working days.
A Fair Payment Code, replacing the Prompt Payment Code, will be introduced later this year. The new code will feature a gold, silver and bronze ranking system, with the Gold Award setting 30-day payments as the new standard for best practice.
The DBT also highlighted that many small businesses have been forced to take out loans against their property due to delayed payments. With UK businesses paying invoices an average of 26 days late in 2024, compared to 22 days in 2023, the new regulations aim to alleviate cashflow challenges for around 5.5m businesses.
It is unclear whether the current government will proceed with legislation proposed by the previous government, which was set to take effect in January 2025.
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