The Fair Payment Code will replace the Prompt Payment Code, shining a light on how larger businesses treat small companies, and awarding those that support small firms. Research from the Department of Business and Trade indicates that there are issues within the supply chain that leads to late payments, and administrative errors that cause delays.

SMEs lose £22,000 a year on average due to late payments, leading to 50,000 business closures per year. The new legislation from Labour will hold larger companies accountable for maintaining cashflow and require them to include payment reporting in their annual reports to mitigate mistreatment of smaller businesses.

Business Secretary Jonathan Reynolds stated: “Late payments are simply unacceptable and this government is determined to level the playing field for small business. When the cashflow runs dry, small firms go under which is why we need to hold larger business to account with their payment practices and foster an environment that supports growth and jobs.”

The new regulations will be launched in the coming months, designed to limit bad payment practices and support innovation and growth for SMEs. The Federation of Small Businesses stated that late payments is a major challenge for small businesses, with 52% suffering from late payments per quarter, which is about 2.6 million firms.

Prime Minister Keir Starmer commented: “We’re determined to back small businesses by unlocking their barriers to growth, and stamping out late payments is at the heart of this. We know how important it is for business owners to have the peace of mind and certainty around their cashflow to keep their businesses alive. Late payments cost businesses tens of thousands of pounds and is one of the biggest reasons businesses collapse.

“After years of delay, we’re bringing forward measures that small businesses have long been calling for to tackle late payments once and for all.”

Small Business Minister Gareth Thomas added: “Small businesses deserve to be paid on time, it’s as simple as that. I’m optimistic that today’s first big step will help pave the way for real change that supports SMEs to thrive and help to grow our economy.”

Paul Stoddart, president, GoCardless commented: "Stamping down on late payments through the measures laid out by the government will lead to economic growth. This will encourage an environment that allows small businesses to thrive, invest in new employees, boost wages and do business overseas, rather than spending time and resources chasing down late payments."