The Association of Chartered Certified Accountants (ACCA) has welcomed the UK Government’s plans to tighten rules on late payments, saying the changes could “transform the cash flow of the small business sector”.
The proposals, set out by the Minister for Small Business and Economic Transformation, Blair McDougall, are intended to help small businesses address late payments.
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According to a government statement, the Small Business Commissioner will receive new powers to investigate poor payment practices, adjudicate payment disputes and fine companies that repeatedly pay late or fail to comply with the new laws.
The government stated that late payments cost the UK economy £11bn ($14.76bn) every year and can leave entrepreneurs and small and medium-sized enterprise owners waiting months, or longer, to receive money they are owed.
The ACCA Global Economic Confidence Survey (GECS) show that concerns about running out of cash can reduce small businesses’ appetite for hiring and capital investment. The accountancy body said a tougher late payment regime could support investment across the UK small business sector.
A key element of the package is a move to make interest charges on overdue invoices mandatory, so that late payers face a direct financial penalty for missing agreed terms.
Although companies have been legally able to levy interest on late payments since 1998, the ACCA notes that many smaller suppliers have avoided doing so out of concern for long-term trading relationships.
ACCA UK Technical and Strategic Engagement head Glenn Collins said: “It is good to see a government taking such decisive action on the scourge of companies not paying promptly.
“Importantly, the proposed regulation focuses on large businesses not paying smaller businesses rather than a blanket approach to all.
“With the overwhelming evidence that late payments is a significant drag on the UK economy these proposals promise to significantly end the problem of poor payment practices. We would suggest that all UK businesses should welcome this step.”
The proposals, which will require new legislation, also acknowledge that there can be valid reasons why some invoices are settled outside standard credit terms.
The ACCA points to the use of a “comply or explain” framework, already familiar in UK regulation, which would allow companies to set out why different payment terms or timelines are applied in particular circumstances.
