Labour’s plan for small businesses - Late payments

Labour’s plan for small businesses

Late payments 

Under the Tory-led government

  • Small businesses can suffer badly when invoices are paid late. A number of bigger businesses have been criticised by business organisations like the FSB of using their suppliers as an unofficial credit line by paying them weeks or even months after the due date. 
  • Insolvency specialists have estimated that 1 in 5 business failures are simply down to bills being paid late rather than a failed business model.
  • The latest figures published by BACs reveal how the problem is growing ever more serious: 
    • Britain’s small businesses now carry a burden of £39.4 billion in overdue payment they are owed. 
    • Sixty per cent of Britain’s small businesses report that late payment is a problem with the average small business waiting for £38,186 in overdue payments.
    • One in four companies spend over 10 hours a week chasing late payments.
  • The government have dragged their feet on this issue. They u-turned and prevaricated on a commitment to name and shame large companies who pay late and delayed the implementation of a EU directive that offered some help against late payers.

With Labour

  • A Labour government would require large business to produce a quarterly report to HMRC which:
    • Lists all payments to suppliers which have been paid thirty days or more than the supplier’s agreed payment terms
    • Where there are examples of delayed payment as above the report would also confirm that interest equalling the Bank of England base rate plus 8% has been paid to compensate the supplier for each day of overdue payment (after these changes, rather than saving interest and improving cash flow late payers will automatically pay interest to their suppliers; and because it is a mandatory requirement to complete this form, it will bring the issue of late payments into the light in a way which all previous government measures have failed to do).
  • A company found to be filing false reports would be forced to pay the interest owed plus any administrative costs to HMRC.
  • We would hope that this power would never have to be used, because it would act as powerful incentive against paying late. 


Is this just another burden on business?

No. Business doing the right thing won’t be affected. This policy has won support from across the business community including the FSB and Forum for Private Business. Phil Orford CEO of the FPB said it is “a welcome addition” to the Small Business Bill and “would go a long way to reducing the time and cost small firms spend on chasing late payments and allow them to concentrate on growing their businesses and creating jobs.”

What about prompt payments, where payment terms are too long in the first place?

We also recognise this problem. That’s why we tabled amendments to the Small Business Bill to ensure any business with payment terms of more than 60 days cannot sign up to the Prompt Payment Code, and that any existing signatory with payment terms of more than 60 days is removed the list.

But the government claims it is increasing transparency - isn’t that enough?

No. Despite the extent of late payment, small businesses are often reluctant to report issues of late payment as they rely on the custom of the large businesses.  Few companies utilise their rights, particularly against corporate late payers. Just 10% of businesses have considered using late payment legislation despite 22% of businesses having ended a business relationship with a customer because of continued late payment.

The challenge is to shift the burden away from small businesses going out on a limb to ask for interest payments, to it being paid as a matter of routine.  That’s what our policy will achieve.

What about late payments in the public sector?

77% of FSB members report that the private sector is the main culprit on late payments.  Whilst we should always ensure that the public sector is the best customer it can be, and we will make sure that happens, the critical issue is private sector abuse.


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