The U.K. government is looking to crack down on companies that take too long to pay suppliers, according to a report from the Financial Times (FT). The effort is intended to relieve pressure on small- to medium-sized businesses (SMBs) facing cash flow troubles because of the ongoing pandemic.
On Tuesday (Jan. 19), the government is planning to strengthen the Prompt Payment Code, which is currently only voluntary, to make it so that 95 percent of invoices for SMBs have to be paid within 30 days, FT reported. That rule will go into effect July 1.
Currently, the rule is that the invoices have to be paid in 60 days, and that will remain the case if the payment is meant for a company with over 50 employees. In addition, company directors, chief executive officers and finance directors will have to personally sign the code to make sure responsibility is given to the highest level of a company, according to FT.
During the pandemic, SMBs have struggled to survive as they’ve lacked the economic resources afforded to larger companies. Late payments have been a concern for some time, FT reported.
Around 3,000 companies have voluntarily signed the code, which was first introduced in 2008, but numerous SMBs have still complained of payment delays beyond the 60-day target, and officials say around 23 billion pounds (about $31.3 billion) in late invoices are owed to businesses across the U.K., FT reported.
Late payments have only become worse during the pandemic, PYMNTS reported. In the U.K., around 50,000 SMBs close per year because of late payments.
PYMNTS also reported on the $1 billion in orders to Bangladeshi companies canceled by U.K. fashion retailers, which has done damage to the world’s clothing industry.
“With the industry contributing to more than 11 percent of the nation’s GDP, the ramifications of delayed payments reach far beyond struggling suppliers,” the report stated.