In his Autumn Statement the Chancellor announced that businesses would be excluded from bidding for large government contracts (Those larger than £5m) if they have payment times of over 55 days by April 2024, reducing to 45 days by April 2025.

Legislation passed this year already means that companies securing public sector contracts have to pay 30-day payment terms within their supply chains for that specific work. The rule will now be extended to all suppliers used by companies bidding for large public contracts.

This was part of a range of measures published today in the Prompt Payment and Cashflow Review. The review found that while payment times have come down over the last decade, SMEs were, on average, owed £22,000 in late payments in 2022.

Key changes in the Prompt Payment and cashflow review include:

• Renaming and strengthening the Small Business Commissioner role, to include investigatory powers and closer links to the Department for Business and Trade to enable stronger enforcement, including more naming and shaming!
• Extending the payment reporting requirements and increasing the transparency of this data
• Improved signposting via Enterprise Hubs, trade bodies, professional bodies, HMRC and Companies House
• Improved guidance for small firms on negotiating good payment terms and further research on the impact of late payment on small businesses
• Working with the FCA to embed payment practices into ESG reporting
• Reviewing the Prompt Payment Code every two years.

The Chancellor is right to have condemned from the despatch box the scourge of late payment practices. Blocking the worst payers from Large Government contracts and increasing the reputational risk faced by those companies who think they can use their small business suppliers as a form of free credit will be an incentive for many to improve their terms.  Hopefully it can reduce the stress and strain on Small business owners and also boost the credit cycle of the country and bolster the working capital of those small businesses, enabling them to grow and invest in their future.

It is certainly a step in the right direction, although CPA continues to advocate for increasing the compensation due to business who suffer late payments from their business and institutional customers, as well as reducing the maximum credit terms from 60 to 30 days.