The Labour government has unveiled its latest policy aimed at supporting the company’s extensive network of small and medium sized enterprises (SMEs).
Announced by the Department for Business and Trade (DBT), the Fair Payments Code will replace the Prompt Payment Code and will be made available for signatures in the autumn.
The code will require businesses to prove that good payment standards have been met before being awarded ‘official code status’. DBT states that late payments are proving a significant burden for Britain’s SME ecosystem.
Jonathan Reynolds, UK Business Secretary, stated that the code will sit alongside other government measures such as cutting trade barriers, reforming business rates and encouraging more SMEs to export.
“Late payments are simply unacceptable and this government is determined to level the playing field for small business,” Reynolds remarked.
DBT states that 52% of UK SMEs face late payments every quarter, amounting to around 2.7 million firms. It is also estimated that late payments cost SMEs £22,000 and 56 million hours of lost productivity, and lead to 50,000 business closures a year – a situation labelled a ‘scourge’ by DBT.
Labour’s business branding
Late payments on contracts are a ‘major brake on growth’ for SMEs, the government asserts. The plans fall in line with Labour’s goals for business and finance expressed during the general election in July, through which the party – then in opposition – tried to paint itself as a party for businesses.
The code will be followed by legislation due to be announced in the coming weeks requiring large businesses to include payments reporting in annual reports. A consultation will also be held on these ‘tough new laws’.
“We’re determined to back small businesses by unlocking their barriers to growth, and stamping out late payments is at the heart of this,” said Keir Stamrer, UK Prime Minister.
“We know how important it is for business owners to have the peace of mind and certainty around their cashflow to keep their businesses alive. Late payments cost businesses tens of thousands of pounds and is one of the biggest reasons businesses collapse.
“After years of delay, we’re bringing forward measures that small businesses have long been calling for to tackle late payments once and for all.”
Gareth Thomas, the government’s Small Business Minister, is due to discuss the measures with SMEs later today. It has not been confirmed how SMEs will be privy to this discussion, but so far the reforms have been welcomed by the Federation of Small Businesses (FSB) software firm Sage, Manchester-based cafe company Black Milk, drinks company Hip Pop and the Good Business Pays campaign group.
Fintech, finance and payments firms of various sizes should pay close attention to these rules, and subsequent legislative developments. For the larger companies in the sector, the requirement to report on payments made to and from smaller contractors could become a significant compliance factor.
For smaller payments and technology firms, it may come as a relief to know that contracted payments could be given more protection in law. A firm selling Artificial Intelligence (AI) or Open Banking tech to a larger player, for example, may benefit from these changes.
Lastly, for the Labour government this could be a significant PR moment in its aforementioned mission to present itself as a party for business. The party may also hope that championing SMEs could help further fuel economic growth for the UK, with inflation having risen slightly in the past month and HM Treasury acknowledging the scale of public debt earlier today.
“This is what real change looks like,” said Tina McKenzie, FSB Policy Chair. “Listening to small firms and prioritising action to tear down each and every barrier to growth. The Business Secretary has clearly recognised the importance of eradicating bad payment culture, which so devastates the UK supplier base and holds back growth.
“This series of actions today – including the crucial steps being taken to deliver on Jonathan Reynolds’ commitment on audit committees – shows the government is rightly focused on delivery and working in partnership with the business community.”
