Chancellor’s announcement could spell good news for small UK businesses
Chancellor Philip Hammond has announced the first stage in a major crackdown on late payments by large companies. Could this finally mark a turnaround for small businesses struggling to maintain their cash flow?
The news from yesterday’s Spring Statement is that large companies will soon have to report on their payment practices every year and will have to review payment practices through their audit committees.
This will come as a welcome step in the right direction for many small business owners, who have found their companies threatened by the continuing issue of delayed payment of invoices.
National chairman of the FSB, Mike Cherry, states that: “Poor payment practices by big businesses towards their smaller suppliers are rife and pernicious, leading to the closure of 50,000 small firms a year.”
He added: “The end of late payments could finally be in sight. It can’t come soon enough, to bolster small businesses at a time when they are in great need of support and a lift in confidence.”
Will it be enough?
Despite this marking the start of a “major crackdown”, the issue of late payments has been on the chancellor’s agenda for several years.
In April 2017, new regulations made by the government forced the largest companies in the UK to report on their payment practices on a twice-yearly basis.
Reflecting on these reports in early 2018 painted a bleak picture, with an average of 30% of invoices not being paid within agreed terms, and some businesses admitting to paying as many as 96% of invoices late.
Although the reports gave added insight into the issue of late payments, for the small businesses struggling with credit management they offered little change.
While this insight into the payment habits of larger customers was useful, for many small businesses, saying no to a lucrative and high value contract is simply not an option despite the risk of late payment.
A key focus
Despite no significant improvements when it comes to late payments thus far, small businesses can take some comfort from knowing that the issue is not going away and is becoming a greater priority.
The end of 2018 brought assurances from the government’s modern industrial strategy that they would work to create a more responsible payment culture. It is expected that the government will also publish its full response to its 2018 call for evidence on the issue shortly.
When it comes to the latest announcement, many small businesses will be eagerly waiting for business secretary Greg Clark to unveil further details about the planned steps to end this late payment crisis.
Only time will tell how big an impact these new measures will have, but for small businesses all over the UK they come as an encouraging and motivating update. It will be of much interest for many of them to follow the progress of these new measures and see what they will look like in reality as more details are released.
Are you encouraged by the latest announcement? We’d love to hear any suggestions you have for ways in which larger companies should be held accountable for their poor payment practices.