The UK government has vowed to tackle \u201cthe scourge of late payments once and for all.\u201d<\/p>\n
In its Plan for Change for Small and Medium Sized Businesses<\/a> published last week, it said late payments cost the UK economy \u00a311 billion every year, and the issue shuts down 38 businesses every day.<\/p>\n Now the government is planning new legislation to stamp out late payments. \u201cToo many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best \u2013 growing their businesses,\u201d Prime Minister Keir Starmer said.<\/p>\n \u201cIt\u2019s unfair, it\u2019s exhausting, and it\u2019s holding Britain back. So, our message is clear: it\u2019s time to pay up.\u201d<\/p>\n The proposed new rules will:<\/p>\n Introduce maximum payment terms for invoices. These will be set at 60 days initially, coming down to 45 days in time. According to the report, \u201cThis will be the most significant legislation to tackle late payments in over 25 years and will give the UK the strongest legal framework on late payments in the G7.\u201d<\/p>\n The new rules are designed to support businesses with fewer than 250 employees, which covers the vast majority of design studios and agencies.<\/p>\n \u201cThe Small Business Plan is a welcome signal of support for the backbone of the design economy; our SMEs, micro-businesses and freelancers,\u201d says Shamir Hale, senior policy and advocacy manager at the Design Council.<\/p>\n \u201cFrom tackling late payments to improving access to finance, these pro-small business measures will make a real difference to the designers powering our economy.\u201d<\/p>\n Writing on LinkedIn, designer Dominic Martin\u2013Manning pointed out how late payments \u201ccan have a significant impact on whether we survive, or end up on the scrap heap.\u201d He said he hoped the new laws would \u201chelp alleviate some of those fears.\u201d<\/p>\n \u201cStricter rules \u2013 and the risk of penalties \u2013 will hopefully change mindsets and improve respectful practices.\u201d<\/p>\n This enthusiasm was echoed by those who represent freelancers, for whom the challenge of late payments is often especially hard to navigate.<\/p>\n According to Leapers<\/a>, an organisation which supports freelancers\u2019 mental health, 72% of freelancers had to chase late invoices last year.<\/p>\n \u201cThe proposed changes to tackle late payments are very much welcomed, as too many freelancers face this issue regularly, with tangible negative impact on both finances and mental health,\u201d says Leapers founder Matthew Knight.<\/p>\n \u201cI\u2019m especially glad to see the SBC have more powers to investigate and fine persistent late payers, more transparency around bad behaviours, and increased penalties. The end of 60+ day payment terms is also fantastic.<\/p>\n \u201cStricter rules \u2013 and the risk of penalties \u2013 will hopefully change mindsets and improve respectful practices,\u201d he adds.<\/p>\n But Knight did raise some questions about the details of the proposals. He pointed out that many late payers are themselves companies with fewer than 250 employees, and so would not be subject to the increased scrutiny laid out in the plan.<\/p>\n He also pointed out that while mandatory interest on overdue invoices is positive, it would still be down to those owed money \u201cto chase and chase\u201d for this extra payment.<\/p>\n \u201cFor some hirers, could it put them off using freelancers, rather than sorting out their internal processes?\u201d Knight asks. \u201cCould also end up being seen as an additional cost of business, and cost be passed on to suppliers or customers?\u201d<\/p>\n Small and medium-sized businesses, or SMEs, make up 99.8% of the UK\u2019s business landscape. They employ 16.6 million people, 60% of the total UK workforce. According to estimates from the Department for Business and Trade, around 80% of SMEs are micro businesses, with one to nine employees.<\/p>\n But SMEs are struggling \u2013 in 2023, only 40% reported an increase in turnover, which was down 6% from 2022.<\/p>\n The proposals are part of the Government\u2019s wider efforts to kickstart the UK\u2019s economic growth. \u201cThrough our Plan for Change, we will make the UK the best place to start and grow a business,\u201d the plan states.<\/p>\n \u201cYou are not just businesses \u2013 you are the nation\u2019s dreamers and doers, innovators, the beating heart of communities, and the backbone of the economy.<\/p>\n \u201cBut for too long, the odds have been against you, as previous governments let problems stack up \u2013 leaving businesses dealing with endless red tape, struggling to access finance and navigating additional trade barriers.\u201d<\/p>\n Alongside the late payments legislation, the plan pledges to cut the administrative costs of running a business by 25%, make tax easier to navigate with the help of AI, help SMEs bring down their energy costs, and provide \u00a34 billion in extra finance, including 69,000 start-up loans, \u201cto inspire the next generation of entrepreneurs and small business owners.\u201d<\/p>\n The Government has opened a public consultation<\/a> on the plans, and Knight urges freelancers and small business owners to make sure their voices are heard.<\/p>\n \u201cThey should absolutely read the proposals and provide input into the public consultation, which runs until October,\u201d he says.<\/p>\n
\nMake interest on late invoices mandatory.
\nGive the Small Business Commissioner (SBC) more powers to speed up disputes and fine companies which are repeat offenders, as well as name and shame them.
\nCompel big companies to report on average payment terms, and review their policies at board level.<\/p>\nA welcome change, but questions remain<\/h5>\n
The backbone of the UK economy<\/h5>\n