At a glance
- New late payment rules require shorter payment terms, audit committees, and stronger enforcement powers.
- Experts are cautiously optimistic but stress the need for robust enforcement.
- Accountants should help clients with forecasting, tracking payers, and reviewing contracts.
Whether from deliberate delays or administrative errors, late payments to suppliers cost the UK economy £11bn a year, and shut down 38 businesses every day.
Or at least those are the UK Government’s figures. And based on them, the Department for Business & Trade has proposed the “most significant legislative reform in 25 years” in its new Plan for Small and Medium Sized Businesses.
In announcing the new measures, Prime Minister Keir Starmer said of the UK’s late payment situation: “It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.”
We spoke to experts in more detail about the new rules, and what they mean for accountants.
A new cap on payment terms
The new legislation will introduce maximum payment terms of 60 days, reducing to 45 days after five years. It will also include mandatory payment of statutory interest on late invoices, increasing the financial incentive to pay on time.
For Laura Linden, founder of Feisty FD, the new rules will offer a boost for small businesses: “It will make forecasting more reliable, allowing SMEs to plan and manage their finances more effectively and without unexpected shocks.”
Oliver Finch is a partner and head of outsourcing and systems advisory at business advisory and accountancy firm Menzies. He agrees that while the plan is a step in the right direction, it’s still twice the standard 30-day terms most small businesses must offer their own customers. Says Finch, “Why not aim for 30 days across the board now, instead of creating a ceiling that some corporates might exploit by stretching to 60?”
Calling the board to account
Under the new plan, large corporations will be legally required to establish audit committees to analyse payment practices at board level. The government says this will “place greater pressure on large firms to show they’re treating small suppliers fairly.”
Linden expects the committees to encourage a cultural shift towards fairer commercial behaviours. “If it stops bigger companies from using smaller businesses as their cashflow buffers, that can only be a good thing.”
The committees will provide recommendations of how to improve payment performance to company directors, ahead of the data being shared with the Government. This information will also be included in companies’ annual reports.
For Finch, while the new rules should strengthen board accountability, the impact will depend on how well it is enforced and measured. If meaningful metrics are used and the results are publicised it could drive real change, “Otherwise, there’s a risk it becomes just another box-ticking exercise.”
More teeth for the OSBC
From October, the Small Business Commissioner (OSBC) will have the power to carry out spot checks on late paying corporations, as well as levy fines against large companies who persistently pay their suppliers late.
The OSBC will also be able to enforce a 30-day invoice verification period, requiring businesses to confirm or dispute invoices promptly to speed up dispute resolutions. Finally, it will tighten rules to exclude public sector suppliers who continually fail to pay on time from large contracts.
For Linden, changes like this always take time to bring in and enforce, and meanwhile larger companies are also likely to push back, which could delay compliance. She adds that while arbitration is available, the process could be complex and lengthy: “This may mean enforcement comes too late to help the SMEs who need it most.”
In light of the changes, what can accountants proactively do to support small business clients as the new plan comes into play?
Sharpen cashflow forecasts
Good practice requires accountants to have cashflow forecasts in place, and to be managing cash so clients can plan when to make payments and when to invest.
There is currently so much uncertainty over the timing of receipts, or such long payment terms, that cashflow forecasting can be very difficult. Finch says that faster payments through the new measures should make forecasting and managing their cash easier and more reliable.
“It will make forecasting more reliable, allowing SMEs to plan and manage their finances more effectively…”
Laura Linden, Founder, Feisty FD
Put late payers on notice
Linden says accountants should update terms and conditions to reflect the new rules on late payments.
This includes identifying clients which are the worst offenders, tracking their behaviour consistently, and engaging with them directly to educate them about the impact of late payments and the importance of complying with the new requirements.
Digitise to get paid faster
For Finch, strong enforcement and building smart digital systems to help raise and send invoices quickly will be key to making real change. These tools can notify users when payments are falling due, and start the clock for payment at the earliest opportunity.
They can also be used for reminders and debtor-chasing, so that invoices go out faster, terms start sooner, and cashflow becomes more predictable.
Rewrite the rules of engagement
Finally, Finch says accountants can help review and structure supplier or customer contracts to take advantage of the new rules. This includes tightening credit terms, building in late-payment interest clauses, and working alongside legal partners where needed.
Experts welcome the new plan’s potential to address late payments, but remain cautious about its effectiveness. They emphasise that strong oversight will be crucial to ensuring the rules succeed. As Finch notes, “Big businesses are adept at finding loopholes.”
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