A newly proposed traffic light system could be used to put a spotlight on businesses with track records of late payments.
Paul Uppal, the Small Business Commissioner, has suggested the system be put in place in order to protect smaller suppliers from businesses who consistently make late payments.
Since 2017, large companies have been legally required to report supplier payment records twice a year, but late payments continue to plague smaller businesses and those who are self-employed.
A recent study which looked at more than two million invoices has found that the average small business owner in the UK is owed on just shy of £25,000 in late payments on any given day.
For a small business that amount of money owed could cover the average staff wage for almost a year and is considered to be the root cause behind 50,000 small businesses folding each year due to cash flow problems.
Under the traffic light system, payment data collected by the Government will be used to flag businesses with a poor record, with a red flag alerting them to suppliers. Companies which fail to report payment practices will also receive a red flag.
The Government has said from autumn 2019 it will only award public contracts to companies that can demonstrate prompt payment to their own suppliers.
The voluntary Prompt Payment Code (PPC) was introduced in an attempt to tackle the issue but has thus proved ineffective. However, in a recent YouGov poll, 73 per cent of MP’s agreed with changes to the PPC which were suggested by the Association of Accounting Technicians (AAT).
The AAT suggested that the code is made compulsory to companies with more than 250 employees, see maximum payment terms halved to 30 days and be supported by a financial penalty regime for persistent offenders.
Phil Hall, AAT head of public affairs and public policy said: “Late payments lead to thousands of insolvencies every year, damage productivity, restrict investment and can impact the health of small business owners.
“Government action to tackle this problem, from the voluntary payment code to compulsory but feeble reporting requirements have all predictably failed to stem the scourge of late payments.
“With almost three-quarters of MPs from across the political divide supporting AAT’s recommendations for payment reform it’s very difficult for the government to continue to drag their heels.”