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The government is considering implementing fines for large companies that continually fail to pay their suppliers on time in an effort to support smaller businesses. Proposed measures revealed on Thursday include limiting invoice terms to a maximum of two months, with plans to reduce this further to 45 days in five years. Business Secretary Jonathan Reynolds announced the proposals, citing research that implicates late payments in the collapse of thousands of businesses annually. Despite opposition parties applauding the move, concerns were raised about the impact of National Insurance increases on firms under Labour.
Late payments have been identified as a significant issue affecting businesses, with government research estimating that around 1.5 million businesses are impacted by delayed payments, resulting in £26 billion owed at any given time. Small businesses, in particular, struggle with late payments as they typically have tighter cash reserves and are disproportionately affected by the time wasted chasing overdue bills. Reynolds emphasized the importance of addressing late payments, noting that it was the top concern raised by small businesses.
Under the proposed changes, the small business commissioner would gain powers to levy fines on companies with more than 250 employees that fail to pay their suppliers on time. Firms that do not settle at least a quarter of their invoices promptly within a six-month reporting period would face fines double the amount owed in late-payment interest. However, the timetable for implementing the necessary legislation has not been specified by the government, pending parliamentary approval.
Additionally, the government aims to reduce the maximum payment period for businesses to settle invoices with suppliers. Currently set at 60 days, companies can request longer payment terms with supplier consent, provided they are not deemed “grossly unfair.” The business department highlighted the disparity in negotiating power between smaller and larger businesses, with some larger firms imposing extended payment periods on smaller suppliers. By eliminating the ability to agree on payment terms exceeding 60 days, the government seeks to rebalance this dynamic while also proposing a further reduction to 45 days in the future to support business cash flow improvements
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