The government is planning to overhaul the small payment regime by moving responsibility for the voluntary Prompt Payment Code to the Small Business Commissioner’s Office, headed by Paul Uppall, which will be given new powers to tackle late payments by issuing fines and binding payment plans when big business fails to pay bills on time.

The clampdown on late payment will see an extension of powers for the Small Business Commissioner with proposals for mandatory reporting of information and disclosure of payment terms and practices, financial penalties and binding payment plans for large businesses found to operate unfair payment practices. However, it has stopped short of introducing a legislative framework for late payment or forcing companies to sign up to the Code.

The Code is currently administered by the Institute of Credit Management on behalf of the Department for Business, Energy and Industrial Strategy (BEIS), and has more than 2,000 voluntary signatories. It is not mandatory and has failed to resolve the problem of late payment for small business.

Under the proposals, which will be put out to consultation, company boards would be held accountable for supply chain payment practices for the first time and audit committees will have to report payment practices in company annual reports.

The government will work with the Financial Reporting Council (FRC) to improve transparency around how supply chain finance is reported in company accounts and assessed in audits, and has briefed the UK standard setter to develop guidance and build it into their sampling of companies’ accounts.

There will also be a push for greater use of accounting and invoicing software, with £1m in funding to encourage businesses to use technology to simplify invoicing, payment and credit management.

Tolhurst said: ‘The majority of businesses pay their bills on time, with the amount owed in late payments halved over the last five years. But as a former small business owner, I know the huge impact a late payment can have on the ability of a small business to plan, invest and grow.

‘These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly - ending the unacceptable culture of late payment.

‘I intend to establish a ministerially led group to bring together key government Departments to act on improving prompt payment across both the public and private sectors.

At the moment, there is no legal requirement to pay invoices with the 60-day limit recommended by the voluntary Prompt Payment Code.

The government’s prompt payment consultation received nearly 300 responses and 97% of those who responded to the question on payments indicated that they experienced late payments from their suppliers with many indicating that the situation had worsened over the last three years. Only 11% said it had improved. Smaller businesses also felt powerless to negotiate with large suppliers over payment terms with 59% of respondents stating that they felt unable to negotiate and/or challenge payment terms offered.

As part of the overhaul of the late payment regime, responsibility for the voluntary code of best practice will be given to the small business commissioner. This will put tools to tackle late payment under one organisation, ensuring the commissioner has the powers to affect culture change in unfair payment practices, although it is not clear how quickly the transition will be made as the government is yet to launch a consultation.

Uppal said: ‘During the first 16 months of my post I have been struck by the trepidation felt by small businesses when talking about late payment with their large suppliers.

‘I welcome any additional provisions which will strengthen the influence my Office has in tackling poor payment practice and levelling the existing playing field.’

There are already reporting requirements for large companies to disclose payment terms and practice, but poor levels of compliance mean that the government is planning to take a tough line on non-compliance with the payment practices reporting duty, an existing mandatory requirement on large businesses to report payment practice to a national database twice a year.

Currently companies can be prosecuted and fined for non-compliance for reporting failures. The government will consult on giving these powers to the small business commissioner.

IPSE research has found that two-thirds of the self employed have suffered from late payment and lost an average of 20 days a year chasing delayed client payments. ‘We are pleased that the government has listened to the UK's smallest businesses and is strengthening their carrot and their stick. This must now end the late payment culture that so many big businesses get away with,’ said IPSE deputy director of policy, Andy Chamberlain.

The largest representative body for SMEs, the Federation of Small Businesses (FSB), also welcomed the announcement. FSB national chairman Mike Cherry, said: ‘Together with measures to strengthen the Small Business Commissioner’s powers and reform the Prompt Payment Code, the measures today could finally see an end to poor payment practice. Changing our business culture will boost the small business community, productivity and growth.’

The Small Business Commissioner’s Office was set up by government in 2017 to tackle the issue of late payments. So far, it has recovered over £3.8m for small businesses.

Sara White