Government targets large firms in crackdown on late payments to small businesses

The UK government is set to introduce new measures aimed at tackling late payments by large firms to small businesses, an issue that contributes to the collapse of 50,000 SMEs every year.

On average, delayed payments cost small businesses £22,000 annually, according to research from the Department for Business & Trade (DBT) and the Federation of Small Businesses.

A consultation has been launched to explore “tough” new laws designed to hold larger companies accountable for late payments, while requiring greater transparency in their payment practices. Under the proposed rules, large firms will be obligated to include payment data in their annual reports, enabling closer scrutiny of their dealings with smaller suppliers.

Previous attempts to address the issue, including the introduction of the “duty to report” legislation in 2017, have seen limited success. Research by the Chartered Institute of Procurement & Supply found only a slight improvement in the payment behaviour of large companies over the past five years, highlighting widespread non-compliance.

Prime Minister Sir Keir Starmer emphasised that eliminating late payments is central to the government’s strategy to support small business growth. “Late payments cost businesses tens of thousands of pounds and are one of the biggest reasons for business failure. We are finally bringing forward the measures that small businesses have been calling for,” he said.

Business Secretary Jonathan Reynolds echoed this sentiment, describing late payments as “simply unacceptable” and stressing the importance of holding larger firms accountable for their payment practices.

In addition to the proposed legal reforms, the government will also enhance enforcement efforts against large firms that fail to report their payment performance as required. Company directors could face criminal prosecution and unlimited fines if they breach the reporting rules. A new fair payment code will be introduced, awarding businesses gold, silver, or bronze status based on their payment standards.

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Government targets large firms in crackdown on late payments to small businesses