Small business cash flow and prompt payment improvements
In November 2023 the Government set out actions in relation to improving cash flow and payments for small businesses. As a result of this amendments have recently been made to the payment reporting regulations.
In this article Rachel Farris sets out the resulting changes to the regulations, as well as giving an overview of the other measures in the Government report. Navigate Practice Management covers the topic of credit management in more detail.
As a result of a review into cash flow and prompt payment launched in 2022, the Government released new measures at the end of 2023 to try and help small businesses tackle the issue of late payment of invoices.
The Government paper Payment and cash flow review report categorised its actions as a result of the initial review into four areas:
- Increasing transparency;
- More active and efficient delivery and enforcement;
- Information and awareness; and
- Payment culture.
Increasing transparency
The Government’s first actions related to increasing the transparency of large businesses’ payment performance in a range of ways.
One of the key ways it planned to do this was through amendment of the Reporting on Payment Practices and Performance Regulations 2017, which has recently done through the Reporting on Payment Practices and Performance (Amendment) Regulations 2024 which came into effect from 5 April 2024.
Under the 2017 regulations large businesses are required to disclose to the Government their payment practices, policies and performance regarding supplier remuneration through an online return.
The original regulations were only set to be in place until 2024, so the 2024 amendment regulations have extended this date by seven years to April 2031.
In addition the scope of the reporting has been widened to include additional information. This includes the sum total of payments made within different timescales (e.g. 1-30 days, 31-60 days etc), the total value of payments not made within the payment period, the percentage of disputed invoices resulting in payments made outside of agreed payment terms and clarification on payment arrangements involving a finance provider.
These changes apply to reporting periods beginning 1 January 2025.
The other Government actions to improve transparency include making it easier for external commentators to analyse the data by sector, increasing publicity through the Minister for Small Business and ensuring the payment reporting data is reflective of real performance.
More active and efficient delivery and enforcement
The Government pledged to improve the delivery and enforcement of the existing tools available to small businesses.
Some of these improvements involve changes to the Small Business Commissioner, which will require legislation to effect, such as broadening its powers to enable it to undertake investigations and publish reports, as well as changing its name.
The Department for Business and Trade will also begin actively identifying and contacting businesses which are not fulfilling their payment reporting requirements.
The Government also notes that the introduction of online electronic filing for all companies at Companies House where accounts are digitally tagged will enable better identification of which businesses should be complying with reporting requirements.
Information and awareness
The Government paper sets out various organisations it would work more closely with such as Business Support Helpline and Growth Hubs, as well as further guidance it would produce covering topics such as negotiating payment terms for small businesses.
Payment culture
Finally the Government set out a set of specific actions and recommendations to improve the UK’s payment culture.
These include working with the Financial Conduct Authority to make use of Payment Performance Reporting data as one of the metrics used in assessing the underlying health of regulated companies and working with trade bodies to increase messaging and transparency of performance within particular sectors. The Government will also be conducting research to look at the impacts of late and long payments on supply chains, innovation and investment.
