1 month ago
SMEs are the backbone of the British economy, making up 99% of all businesses in the country. However, they often face challenges when it comes to late payments, which can hinder their growth and financial stability.
In response, the Government has launched a comprehensive review and a set of new measures designed to address late payments and improve cash flow. In this article, we explore the Prompt Payment & Cash Flow Review and its implications for SMEs.
Late payments have long been a source of frustration for small businesses in particular. 'Startups' estimated that SMEs were owed an average of £22,000 in late payments in 2022. This financial burden has been detrimental to many businesses which lack the financial strength to withstand long delays.
To combat this, the Government has launched the Prompt Payment & Cash Flow Review to examine current payment practices and assess whether the right support is in place for businesses. The goal is to foster a more conducive environment for SMEs and potentially boost the economy by £2.5 billion annually.
The Government plans to extend the Reporting on Payment Practices and Performance Regulations, initially introduced in 2017. This extension will allow for new reporting, including a value metric to assess the value of invoices. It will also include metrics for late payments and disputed invoices.
The powers of the Small Business Commissioner will broaden to enable investigations and reports that will strengthen their ability to support SMEs. The Government will also provide SMEs with guidance on negotiating payment terms that better suit their needs and transitioning to digital payment methods.
The Government believes that these new measures will have a benefit for SMEs. By cutting down on time spent chasing late payments, businesses can free up resources for work that contributes to growth. This approach presents a unique opportunity to boost economic investment and productivity.
Kemi Badenoch, Secretary of State for Business and Trade, expressed her commitment to addressing the late payments issue: "SMEs make up 99% of firms in the UK and are the lifeblood of our economy. I know that late payments are a massive barrier to growth and I am determined to fix that."
New research from Intuit QuickBooks revealed that one in six invoices issued by SMEs was overdue, with more than half of SMEs believing the problem had worsened recently. The most common causes for unpaid invoices were cash flow issues and simply forgotten deadlines.
The new Government measures aim to tackle these issues head-on by encouraging prompt payments and improving cash flow.
The Prompt Payment & Cash Flow Review is a significant step forward in addressing late payments to SMEs. By extending reporting obligations, providing guidance to businesses and empowering the Small Business Commissioner, the Government aims to create a more supportive environment.
In doing so, they hope to unlock the full potential of these businesses and bolster the British economy. With these measures in place, the future looks a lot brighter for SMEs aiming for improved financial security.
Chasing up late payments and keeping customers happy is often a delicate balancing act for SMEs. Fortunately, options are available to help bridge the gap between available funds and pending payments.
While business loans can be a valuable resource, it's vital for businesses to carefully consider their financial strategy and seek professional advice when exploring this option. By using business finance wisely, SMEs can weather the challenges presented by late payments.
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