Cameron eyes fines for firms that pay bills late

Small business owners have welcomed a proposed crackdown on late payments, which could see larger firms fined for not paying their bills on time.

David Cameron wants a consultation on late payment to SMEs. Picture:Getty

David Cameron said the UK government is to launch a consultation this year to examine ways of speeding up payments by large companies, after a YouGov survey found 85 per cent of small suppliers had been affected by late bills over the past two years.

The Prime Minister said: “More needs to be done to build a business culture across all sectors of the economy that sees the fair, prompt and reliable payment of suppliers become a core corporate responsibility which is taken seriously at the most senior levels.”

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The consultation will examine whether there is a need to impose fines on companies that do not pay their suppliers on time, with ways to encourage small firms to claim the interest they are owed on their bills.

Alexander Jackman, head of policy at the Forum of Private Business, said the consultation was “long overdue” to prevent the exploitation of small firms by major customers.

YouGov’s survey found 11 per cent of SMEs have almost failed because of late bill settlements.

Jackman added: “It is essential the government uses all the evidence submitted to develop some robust policy actions to tackle the problem of late payment effectively.”

However, shadow business secretary Chuka Umunna accused Cameron of standing up for a “privileged few” and failing to support small businesses.

He added: “The Tories may talk tough on late payment but they have repeatedly failed to stand up to big firms that hoard cash and fail to pay their suppliers on time.

“Under this government we have seen payment terms lengthen and small businesses are now owed £36 billion in late payments.”

The Institute of Credit Management (ICM), which manages the prompt payment code for the Department of Business, cautioned against a rush towards a system of statutory fines.

ICM chief executive Philip King said: “The EU payment directive allows businesses to charge interest in late payment, and there are additional charges for delays that are in effect ‘fines’ by any other name. It is not fines that we need, but rather a change in culture and attitude to payment.”

Katja Hall, chief policy director at the CBI, said the existing voluntary prompt payment code – set up in 2008 under the Labour government – was a step in the right direction, but many small firms do not pursue recourse for late payments “for fear of falling out with their customers”.

A spokesman for the Federation of Small Businesses (FSB) in Scotland called on big companies to “play fair and pay fair”, but also said central government needs to get its own house in order to make sure sub-contractors involved in public works get paid on time.

FSB national chairman John Allan said: “Being paid late or given extended terms can severely hamper many small firms. They simply don’t have the same cash-flow buffer as large businesses, so being paid on time can be the difference being able to pay staff and not.”

According to the government, UK firms have to wait an average of 44 days for payment from business customers.