The government will consult on tough new laws which will hold larger firms to account and get cash flowing back into businesses – helping deliver our mission to grow the economy.

In addition, new legislation being brought 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 in their annual reports about how they treat small firms. This will mean company boards and international investors will be able to see how firms are operating.

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.

Under current laws, responsible directors at non-compliant companies who don’t report their payment practices could face criminal prosecutions including potentially unlimited fines and criminal records.

The consultation which will be launched in the coming months, will also consider a range of further policy measures that could help address poor payment practices.

Every quarter, 52% of small firms in the UK suffer from late payments, meaning roughly 2.6 million small firms face this issue, with the Federation of Small Businesses describing it as one of the biggest problems facing SMEs.

Late payments are just one element of the problem, with some SMEs forced to wait months for contracts to be fulfilled and some are even forced to take out loans against their own homes to manage cash flow.

Cracking down on late payments will unlock growth for 5.5 million small firms by enabling them to invest their time hiring more employees, boosting wages, and exporting around the world, rather than chasing down late payments.

New proposals, subject to consultation, will be bought forward on audit and audit committees, in order to help rebuild small businesses’ trust that they will be paid on time and to deliver on Labour’s manifesto commitment to tackle late payments.

Glenn Collins, head of technical and strategic engagement at ACCA, said: “We are pleased to see this move by the government today. ACCA has been a consistent and vocal supporter of the need to ensure small businesses are paid on time and have clear knowledge of the payment practices of who they are doing business with. It is a great first step but there will be more work to do. We look forward to participating in the consultation on the proposed new laws.

“Late payment and unfair practices continues to blight small businesses across the UK. We have long called for urgent implementation of proposed improvements to tackle late payment problems, including expansion of prompt payment reporting and the proposed expansion of powers for the Small Business Commissioner (SBC). We are glad that some initiatives are now being taken.”

Susan Love

Susan Love, strategic engagement lead for Scotland, added: “Small businesses account for more than 98% of businesses in Scotland. It is vital that they are able to get paid on time, as cashflow is critical for smaller firms.

“We are pleased that the SBC has been given extra powers to tackle some of the defaulters under the old code, though we will be calling for additional reforms to provide more transparency in this area.

“Clearly the code is voluntary, but in our work with businesses large and small, we’ll be asking firms to explore how they can encourage organisations in their supply chain to consider signing up to this enhanced code to eradicate the scourge of late payment.”