The UK government is to clamp down on late payments, a pervasive issue costing small- and medium-sized enterprises £22,000 per year and which consequently leads to the closing of around 50,000 businesses a year.

The new Labour government said that it will consult on tough new laws which will hold larger firms to account, and get cash flowing back into businesses.

In the meantime, legislation being introduced 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 about how they treat small firms.

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.

Consultation on the raft of measures is set to be launched in the coming months, and will also consider a range of further policy measures to address poor payment practices, the government said.

Further, the government will work closely with small and large businesses as well as groups such as the Federation of Small Businesses (FSB) to discuss what additional measures can be considered to crack down on late payments.

The Issue of Late Payments
Every quarter, over half (52%) of small firms in the UK suffer from late payments, meaning roughly 2.6 million small firms face this issue, with the FSB describing it as one of the biggest problems facing SMEs.

While late payments are just one part of the problem, some SMEs are even forced to take out loans to manage cash flow in the interim.

New research published by the Department for Business and Trade found payment problems multiply further down the supply chain you go, resulting in smaller businesses generally experiencing more issues with late invoices than larger firms.

Speaking on the government’s plans, Tina McKenzie, who serves as FSB’s policy chair, said: “This is what real change looks like. Listening to small firms and prioritising action to tear down each and every barrier to growth.

“The Business Secretary has clearly recognised the importance of eradicating bad payment culture, which so devastates the UK supplier base and holds back growth.”

McKenzie added: “There will be so many decisions the Government needs to get right, early – an actively pro-small business budget, a good industrial strategy and tackling late payment.

“Announcing this programme of work today is a huge confidence boost for the small business community and a clear signal the new Government intends to stand up for small firms.”

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Scotland’s Own Late Payments Problem
The news comes shortly after DIGIT reported on how Scotland’s small businesses experienced a significant rise in late payments—as well as falling business confidence—in the runup to the General Election.

FSB’s research via its Small Business Index (SBI) for the second quarter of 2024 found that more than three-fifths of small Scots firms (62.5%) experienced issues with late payments.

Not only is this significantly higher than in the previous quarter (57%), but nearly a third of businesses (32.29%) also reported that the problem was getting worse.

The rise in late payments came as confidence among small businesses slipped into negative territory, with the SBI in Scotland falling by 17.7 points to -7.

This followed the first positive reading for a year in the first quarter of 2024.