The Government has announced new legislation which is designed to protect small businesses and aims to ensure that companies pay suppliers within 60 days, with late payments potentially triggering fines. Boards must also detail payment terms in their audit reports.
Under the new plans, the Small Business Commissioner will be given sweeping new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders, with fines worth tens of millions for firms that persistently pay late or fail to comply with the new laws. The government says that the new rules will be among the toughest in the world, and bring the UK into line with the rest of the G7 economies.
The measures will tackle a problem that is estimated to cost the UK economy £11 billion every year and ease the cost of living for entrepreneurs and SME owners who are often forced to wait months – or even years – to receive money they have already earned and having to chase endlessly to receive it.
“This new legislation is very welcome,” says Paul Beare, who works closely with small and growing businesses to ensure smooth cashflows are maintained. “According to the government, some 38 businesses shut their doors every single day because they are not paid on time – the equivalent of 266 a week, and well over a thousand in any given month, so that shows the size and scale of the problem.”
So these new rules should help SMEs
The changes will include a new 60-day cap on payment terms for all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.
For example, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, it will be owed £10,293.15, including mandatory interest (£10,000 plus £193.15 interest plus £100 compensation).
The measures also propose to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms from losing retentions to insolvency or non-payment.
“It’s vital that government protects growing businesses with legislation that is effective and timely,” says Paul. “We see the impact of late payments every day with the clients we work with, many of whom are overseas businesses setting up in the UK and expecting to be paid on time by their customers.
Making sure they’re protected by rules with real teeth is a definite step in the right direction.
Wherever you are in your growth journey, Paul Beare has built a team around a core of specialists in accounting, banking and company law who know the system back to front and as such, we can offer a full range of accounting services, from tax and payroll to accounting and banking.
For overseas businesses, the right advice at the start can prevent expensive corrections later. If you are planning to establish a UK company or register a trading name, Paul Beare would be pleased to guide you through the process. Get in touch today to book a free consultation.
