A government crackdown on the late payment crisis stifling many small businesses has been welcomed by a Hampshire chartered accountant.
Under tougher rules being introduced on July 1, companies will be obliged to pay smaller businesses and suppliers within 30 days, half the current period.
Gary Brown, director at Southampton-based HWB, says the change to curb the damaging culture of late payment is vital to speed economic recovery. Late invoices worth around £23.4 billion are owed to small businesses (SMEs) in Britain with many being pushed to the brink by companies withholding payments to protect themselves from the impact of covid-19.
More than 78% of SMEs that are owed money are forced to wait at least one month beyond their agreement terms before being paid. There were 6m SMEs in the UK in 2020, which was more than 99% of all businesses.
Brown, who heads up the legal specialism team at HWB, said: “Thousands of small businesses that face severe cashflow problems due to late payments stand to benefit from changes to the prompt-payment code. Payment delays are holding back investment, stymying job creation and leading to job losses and business closures and damaging Britain’s future prosperity.”
Brown said the Government had strengthened the prompt-payment code so that 95% of invoices from smaller businesses (those with less than 50 employees) must be paid within 30 days from July 1, 2021, down from the previous 60 days. Also, directors, finance officers and chief executives of the 3,000 companies signed up to the voluntary code will also need to personally sign the code to ensure they are accountable for making prompt payments.
Paul Scully, small business minister, said: “Late payments are nothing new for smaller businesses, but the covid-19 pandemic and various lockdown restrictions have exacerbated the situation for many. These significant reforms show we are now pushing big businesses to pay their suppliers on time.”
The Federation of Small Businesses (FSB), which estimates that small firms account for two-thirds of UK private sector employment and more than half of business turnover, says 50,000 close every year due to late payments.
One MD of a Hampshire-based SME said: “Although we pride ourselves on paying suppliers either immediately or within five days at the latest, we suffer from other businesses failing to pay us on time. Late payment can really affect the cash flow situation of smaller businesses without huge reserves to tide themselves over.”
The target under the Prompt Payment Code for invoices from larger businesses (more than 50 employees) will remain at 95% of invoices paid within 60 days. Latest government statistics from 2020 show there are 36,000 businesses with 50-249 employees and 8,000 with more than 250 employees in the UK.
Chartered accountants HWB, headquartered at Chandler’s Ford, near Southampton, provides business and tax advice.