Five-day payment rule pledged by ministers in attempt to clampdown on late payers

The government is attempting to eliminate the problem of late payments once and for all by promising five-day payment terms for small and medium-sized businesses who can be left fighting for survival due to the inaction of large firms.

The latest government move to end the problem which is systemic within the industry has been brought about by the collapse of Carillion at the start of the year which utilised 120-day payment terms despite being signed up to the prompt payment code.

Nearly a quarter of UK businesses report that late payments are a threat to their survival. Tackling them represents a huge opportunity for economic growth, with research from the Federation of Small Businesses suggesting it could add £2.5bn to the UK economy and keep an extra 50,000 businesses open each year.

Small business minister Kelly Tolhurst has launched a call for evidence to consider the best way company boards can put in place responsible payment practices throughout their supply chain. One way being considered is by selecting a non-executive director to be specifically responsible for the company’s prompt payment performance.

The government is taking the lead on the issue and has lined out ambitions that all its departments commit to paying 90% of undisputed invoices from SMEs within five days and each department has a dedicated non-executive director responsible for prompt payment.

On the latest move by the government, Tolhurst said: “Our 5.7 million small businesses are the backbone of our economy, and ensuring we remain one of the best places in Europe to start and grow a small business is a key part of our modern Industrial Strategy. Over the past five years the amount owed to businesses in late payments has halved, but we will go further to make sure all of our small businesses are treated fairly.”

Other proposals to improve the process involve promoting innovative technologies, such as the latest accounting software, to help small firms manage their payments processes, and empowering trade bodies to highlight the best and worst practices in payment behaviour. 

While trade bodies are being invited to highlight best and worst practices in payment behaviour in order to deliver practical improvements.

Small Business commissioner Paul Uppal will also be joining the Prompt Payment Code’s Compliance Board to provide a more joined-up approach to the issue and reassert its relevance to industry.

Federation of Small Businesses (FSB) national chairman Mike Cherry said: “Late payment is the biggest challenge affecting small businesses and it is good to see the government getting serious about this issue, especially when it comes to large firms paying their supply chains promptly. The voluntary Prompt Payment Code is not working when it allows signatories like Carillion to pay on terms of over 120 days, so we want to see a new tough and transparent compliance regime being proposed.

The call for evidence launched today forms part of the government’s modern Industrial Strategy, with businesses, trade associations and other interested parties invited to file submissions until 29 November.

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