Almost all small business owners (97 per cent) haven’t seen any reduction in late payments since the government’s Fair Payment Code was introduced, according to data from Simply Business.
Under new laws, larger companies will be held to account and the Small Business Commissioner has greater enforcement powers. But with the issue of late payments persisting for most businesses, it seems the initiatives are yet to have an impact.
Read on to find out the current state of the late payment crisis, and why the government’s new laws are struggling to make a difference.
Are the government’s late payment strategies working?
With our research finding that small businesses were owed an estimated £32 billion in late payments in 2023, it’s clear the scale of the problem is huge.
Back in October 2024, the government announced a range of measures to help reduce the problem of late payments for small businesses, including a new Fair Payment Code.
But since then, a Simply Business survey of over 900 business owners found that only three per cent have seen a reduction in late payments. And for 12 per cent of small business owners, there’s been a concerning increase in late payments since the introduction of the Fair Payment Code.
Not all of the government’s measures have been introduced yet, with the rest set to come in by July 2025. And with the Fair Payment Code only starting in January, small businesses owners may need to wait to see any improvements.
What’s more, wider economic challenges, such as President Trump’s trade tariffs, are squeezing business’s profits which could be making late payments worse.
What are the government’s plans to reduce late payment to small businesses?
Prime minister Sir Keir Starmer said that ‘stamping out late payments’ is ‘at the heart’ of the government’s plans to ‘unlock barriers to growth’ for small businesses.
The government estimates that the new measures will help 5.5 million small businesses to benefit from improved cash flow. They’ll also be able to spend more time growing their business, rather than chasing late payments.
This is what’s proposed in the legislation:
- all large businesses (with over 500 employees) will be required to include payment reporting in their annual reports
- increased enforcement of the existing late payment performance reporting regulations
Responsible directors at companies who don’t report their payment practices could face criminal prosecutions, including criminal records and unlimited fines.
What is the Fair Payment Code?
The Fair Payment Code replaced the Conservative government’s Prompt Payment Code, which has 5,000 signatures from large businesses.
Companies that sign up will need to prove that they’ve met good payment standards before being awarded official code status.
The code has three award categories:
- Bronze – businesses that pay 95 per cent of suppliers within 60 days
- Silver – businesses that pay 95 per cent of their small business suppliers within 30 days and all other suppliers within 60 days
- Gold – for businesses that pay 95 per cent of their suppliers within 30 days
“Late payments are simply unacceptable”
When launching the new measures, Business Secretary Jonathan Reynolds said: “Late payments are simply unacceptable and this government is determined to level the playing field for small business.
“When the cash flow runs dry, small firms go under, which is why we need to hold larger businesses to account with their payment practices and foster an environment that supports growth and jobs.”
Small Business Minister Gareth Thomas added: “Small businesses deserve to be paid on time, it’s as simple as that.
“I’m optimistic that [these measures] will help pave the way for real change that supports SMEs to thrive and help to grow our economy.”
More guides for small businesses
- Bookkeeping guide for small businesses
- How to budget: a budget calculator and guide
- Best small business bank account – your options explained
- Best self-employed accounting software
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