Government Plans To Improve SME Late Payment Problems

Late payment is one of the single biggest frustrations for small business owners. They rely on prompt payments from their customers to avoid cash flow problems, and yet recent surveys show that UK small business owners are owed a staggering £32.1 billion in late payments.

Because the issue of late payments to SMEs is only growing, the Government has launched a Payment and Cash Flow Review. This review is designed to identify measures that the Government can take to improve payment practices among UK businesses. The aim of this is to:

‘Examine the effect of existing government policy levers and make recommendations on the future of these policies, including how they can work better together and where they can be improved.’

But what does all of this really mean, and when can small business owners expect to see change?

What’s the Current Situation?

You might not know this (many small business owners don’t), but there is already legislation in place to support SMEs in chasing overdue debts. It’s called the Late Payment of Commercial Debts (Interest) Act 1998, and it gives you the statutory right to claim interest on an overdue debt, as well as compensation for costs you’ve incurred in debt collection. You can charge 8% above the Bank of England base rate for interest, and collection charges of £40 for a debt of up to £999, and £100 for debts over £10,000. There is also something called the Prompt Payment Code, which was brought in in 2008, and is a voluntary scheme for businesses to commit to paying their suppliers on time.

The question many people are asking is whether the new plans will dovetail into the current legislation, or replace them altogether.

What Are The Government’s Plans?

The Payment and Cash Flow Review will take an incredibly broad view of the issue of late payments, and aim to set out the issues from the point of view of small businesses. Some of their potential new plans could include:

• Legislation to encourage better reporting, including new metrics to enable businesses to see the value of invoices and identify serial late payers.
• A requirement for the construction sector to report on retention payments.
• More powers for the Small Business Commissioner, enabling the commissioner to investigate and publish reports based on anonymous information and intelligence.
• Advice to small businesses on how to negotiate better payment terms.
• Encouraging businesses to use digital payment technologies and embed prompt payments as part of their Environmental, Social and Governance (ESG) programmes.

Of course, we have no real way of knowing what the Government’s plans will be, but these are some of the more likely outcomes of the review.

What’s The Timeline?

At the moment, there is no specific timeline in place for this to take effect. Now that the Government has completed stage 1 (extensive research and stakeholder engagement), they plan to deliver a conclusions document in late 2023. This document will be a summary of their findings, a description of what their next steps will be, and a formal response to the consultation on reporting regulations. At that point they will set out their findings of their statutory review on the performance of the Small Business Commissioner. That’s going to be one big document!

But even then, that document is just laying out the findings and the plans. It’s not actually taking action. It’s likely we won’t see any movement on the issue until mid-2024 at the earliest, depending on how many other reviews the Government needs to perform.

Of course, that’s all great if you don’t need help right now. But if you’re already struggling with late payments, then this is too little, too late. Instead, you need to instruct a professional debt collector who can work with you to recover funds already owed to you, and put policies in place to ensure late payments are minimised moving forwards. At Debtcol we specialise in helping businesses get paid what they are owed. We have a strong record of working with SMEs, chasing debts with care and diligence while providing guidance and information at every stage. If you need support, just get in touch with the team today to book your free consultation.