UK Businesses Face Stricter Payment Deadlines Under New Government Reforms

Keir Starmer has issued a stark warning to UK businesses that persistently delay payments to their suppliers: “It’s time to pay up.”

The prime minister’s remarks come as the government unveils what it calls the toughest crackdown on late payments in a generation, aiming to tackle a problem that costs the UK economy £11 billion every year and forces 38 small businesses to close daily.

Under the new reforms, the Small Business Commissioner (SBC) will have powers to impose multimillion-pound fines, carry out spot checks, and set deadlines for resolving disputes. Maximum payment terms will be capped at 60 days initially, before dropping to 45 days a shift Labour says will give firms “certainty they’ll be paid on time.”

For small business owners in Teddington, these changes could mean fewer sleepless nights over unpaid invoices but only if they combine the new protections with solid in-house payment practices. That is where experts such as Baker Ing, a specialist in commercial debt recovery, say preparation is key. “While these reforms should make life easier for small suppliers, good payment habits start with the business itself,” a spokesperson says. “That means keeping accurate records, sending timely reminders, and having a clear process for following up on overdue invoices.”

What Are The New Reforms

The government’s crackdown comes in response to the widespread problem of late payments, which is not only a burden for individual businesses but also a drain on the UK economy. 

Here’s what’s changing:

• Payment Terms: While maximum payment terms will be initially capped at 60 days. The new maximum payment term will be 45 days.
• Interest on Late Payments: Businesses will be able to charge interest on overdue invoices. 
• Enforcement Powers: The SBC can now impose multimillion-pound fines and conduct spot checks to ensure that businesses are adhering to payment rules.
• Corporate Disclosure: Large scale companies will now be required to disclose their payment practices in their annual reports. 

If you’re a small business owner, these changes may seem overwhelming and significant initially. But for years, late payments have been a silent killer for businesses of all sizes. As the FSB puts it, “Late payments stifle small businesses and enough is enough”.

What’s The Economic Toll of Late Payments

Late payments aren’t just a nuisance, they’re a major financial burden especially for small businesses. Late payments could lead to missed wages, delayed orders, or worse, forced closures.

Acc. to the FSB’s Time is Money Report, about 52% of small businesses in the UK face delayed payments proving disastrous for some. That’s why these new government reforms are more than just a regulatory change, they’re a lifeline for struggling business owners.

In fact, late payments are responsible for 38 business closures every day. That’s 38 businesses in the UK struggling with cash flow issues because their clients haven’t paid up. The ripple effect is huge – stifling economic growth, putting businesses at risk of going under and costing £11 billion to the UK economy every year.

How the Reforms Will Affect Small Businesses in Teddington

Firstly, let’s view the advantages and disadvantages of the new reforms.

The Advantages:

• More Predictable Cash Flow: With the cap on payment terms, you’ll know exactly when to expect your payments. 
• Better Protection: The SBC has stronger powers to go after chronic late payers. That means businesses in Teddington won’t have to fight as hard to get their money.
• Faster Resolution: Fines for non-compliance and spot checks will help resolve disputes quickly.

The Disadvantages:

• Pressure to Get Organised: To take full advantage of the changes businesses will have to maintain accurate records, set clear payment terms and chase overdue invoices promptly.

Steps to Take for the New Late-Payment Rules

With the government doing its part, Teddington businesses need to step up. 

Here’s 5 steps to prepare businesses for the new late-payment rules:

1. Keep Accurate Records: Track all invoices, payments, and outstanding debts. Use tools like Quickbooks and Sage for accounting and bookkeeping .
2. Set Clear Payment Terms: When you first engage with a client, make sure payment terms are crystal clear. Agree on a 45-day payment term and stick to it.
3. Automate Reminders: Set up automatic reminders to nudge clients as payment due dates approach. This saves you time and ensures you don’t miss a deadline.
4. Have an Escalation Process: Put a plan in place for dealing with overdue invoices. If a payment is late, know exactly who to contact and when to escalate the issue.
5. Stay Updated: Keep an eye on any changes to the government’s rules and adjust your payment practices accordingly.

For more details on how to report late payments and ensure compliance, check out the Small Business Commissioner’s website.

Conclusion

While the new government reforms will certainly help tackle late payments, the real work starts within the business itself. These rules are a much-needed boost for small businesses, but the key to success is strong internal practices.

Teddington businesses can take advantage of these reforms by keeping organised, tracking payments and staying proactive. It’s a new era for small business cash flow and it’s time to start taking control.

Comments