Department for Business and Trade announces plans to reduce the late payment of business invoices mirroring a similar initiative in the EU
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On 2 October 2023, the Department for Business and Trade (the “DBT”) announced plans to reduce the late payment of business invoices, amid concerns around payment culture towards Small and Medium-sized Enterprises (“SMEs”).
Measures of the DBT
In 2022, SMEs were owed on average £22,000 in late payments. SMEs are organisations that maintain assets, revenues or a number of employees below a certain threshold. Each country has its own definition of what constitutes a SME. The UK government definition of SMEs mirrors that defined in the EU recommendation 2003/61. It encompasses micro businesses with less than 10 employees and an annual turnover under €2 million, small businesses with less than 50 employees and an annual turnover under €10 million, and medium-sized businesses with less than 250 employees and an annual turnover under €50 million.
Late payments and long payment terms are frequently identified as significant barriers to business growth. The government hopes that improving payment culture towards SMEs, many of which lack the resources to accommodate late or long payments, could boost the economy by £2.5 billion annually.
The DBT intends to introduce new, tougher measures on late payments in the upcoming Prompt Payment and Cash Flow Review and aims to improve delivery and enforcement of policies, making it possible for more SMEs to receive timely payments. As it stands, owners of small businesses are forced to invest an excessive amount of time chasing overdue payments, resulting in cash flow issues. This is particularly critical against the backdrop of…
