Large businesses owe their small suppliers £23.4 billion in late payments, according to the Government - sparking a review by the Department for Business, Energy and Industrial Strategy (BEIS).

Business Secretary Grant Schapps announced on 3 December that the comprehensive review would be launched to scrutinise payment practices and "prevent small firms from being ripped off by larger companies".

The review will also "consider the progress made in specific sectors of the economy in combating late payment and will include an examination of current payment reporting regulations and the prompt payment code", according to the BEIS.

Schapps said:

"The UK's 5.5m small businesses are an integral part not just of our economy, but of our communities too, and this Government is firmly on their side.

"That many small firms are routinely paid late is intolerable and presents a real barrier to productivity, the creation of high-skilled jobs and ultimately economic growth."


Late payments hit two year high

According to research carried out by cloud accounting software provider Xero, payments to small businesses were an average of 8.2 days late in September, the highest late payment time since August 2020.

Calling for tougher penalties for larger businesses that fail to meet agreed payment terms, managing director of Xero, Alex von Schirmeistersaid the previous Government's mini-budget has "left small businesses in limbo at a time when they need stability".

Simon Gray, head of business at the Institute of Chartered Accountants for Wales and England (ICAEW), said:

"Economic uncertainty has increased focus on the security of supply chains and the need to maintain adequate working capital arrangements.

"While it's disappointing to hear that payment days have slipped in September, in advance of new legislation, there are things that businesses can do, such as negotiation at the outset and ensuring any variance to standard terms is agreed upon and documented up front."

Scepticism over new legislation

The Government has started debating new legislation, known as the Procurement Bill, which would set out a 30-day payment requirement in public sector supply chains.

The Bill is currently in its third reading in the House of Lords before it is passed to the House of Commons.

While some agree that new legislation is a good move forward to combat the rising issue of late payments, Liz Barclay, small business commissioner of the ICAEW, questioned whether it would fix the problem soon enough.

Suggesting there are not enough resources to police the new proposals for the 5.6m companies in the UK, Barclay said more focus should be on client relationship management between bigger businesses and suppliers.

She added:

"Legislation to speed up payments, if it was decided that's what's required, would take time to progress through the legislative process.

"We need companies to understand now that if they don't pay faster, their suppliers will have gone to the wall, leaving them in danger of going to the wall themselves as they struggle to find new suppliers."

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