Late payments are a persistent issue that places immense financial pressure on businesses, especially small and medium-sized enterprises (SMEs) in the UK. Research shows that SMEs are owed an average of £22,000 each year, a figure that can push many to the brink of closure. Recognising the urgent need for change, the government has launched a new Fair Payment Code to tackle this problem head-on.
Small businesses are the backbone of the UK economy, comprising 99.8% of all businesses and employing over 60% of the workforce. Yet, the challenges they face—from the pandemic to soaring inflation and energy bills—have only magnified the risks posed by late or lengthy payments. Addressing these issues is not just about supporting small businesses; it’s about ensuring the health of the broader economy.
The Fair Payment Code introduces a tiered gold, silver, and bronze system designed to incentivise good payment practices and help SMEs identify reliable business partners. Overseen by the Small Business Commissioner, Liz Barclay, the code is part of a broader government effort to foster economic stability, support entrepreneurs, and change the UK’s payment culture for the better.
But what does this mean for businesses and debt recovery professionals? How can they adapt to this evolving framework, and what opportunities and challenges does it bring? This article explores the key features of the Fair Payment Code, its implications for businesses, and the broader support measures aimed at unlocking the full potential of UK entrepreneurs, including disabled founders.
Let’s delve into what this new initiative means for SMEs, debt collection agencies, and the UK economy as a whole.
The Fair Payment Code: Changing Payment Culture
The Fair Payment Code is a direct response to widespread frustration among suppliers about late payments and overly lengthy payment terms. At its core, the initiative aims to ensure that suppliers are paid within 30 days, with delays becoming the exception rather than the rule. This shift is intended to alleviate cash flow pressures, helping SMEs avoid financial strain or even insolvency.
The gold, silver, and bronze tier system rewards businesses that demonstrate best practices in timely payments. By adhering to the code, companies can build trust and establish themselves as reliable partners in the eyes of suppliers. This transparency is vital in an era where late payments are not just a financial burden but also a source of mistrust and tension within supply chains.
Small Business Commissioner Liz Barclay emphasises that this initiative isn’t just about enforcement; it’s about setting a new standard for business-to-business interactions. The government’s clear intention is to shift the culture towards fairness and efficiency, ensuring that SMEs are treated with the respect they deserve.
Additional Support for Disabled Entrepreneurs
Beyond the Fair Payment Code, the government has introduced the Disability Finance Code for Entrepreneurship, which aims to address the challenges disabled entrepreneurs face in accessing finance. Research from the Lilac Review estimates that improving opportunities for disabled founders could unlock £230 billion in additional growth for the UK economy.
This initiative, supported by major banks including Barclays, HSBC UK, Lloyds Banking Group, and NatWest, seeks to create a fairer financial system. Key measures include:
- Improved access to tailored finance products for disabled entrepreneurs.
- Enhanced mentoring opportunities to guide disabled founders through their entrepreneurial journey.
- Increased representation and visibility of disabled entrepreneurs’ success stories.
By levelling the playing field for disabled founders, this code not only addresses inequality but also taps into a vast reservoir of untapped potential.
Opportunities for Debt Recovery Professionals
For debt recovery agencies and professionals, the introduction of the Fair Payment Code presents both challenges and opportunities.
On the one hand, the increased focus on timely payments may reduce the volume of debts requiring recovery. However, it also creates opportunities to work closely with businesses to ensure compliance with the code. Agencies can offer their expertise in reviewing payment practices, identifying risks, and helping clients resolve disputes efficiently.
Furthermore, debt recovery professionals will likely find themselves navigating a more transparent system where the expectations for timely payments are clear. This could reduce ambiguity in disputes, streamlining the recovery process and fostering quicker resolutions.
What Businesses Should Do Now
For business owners, signing up for the Fair Payment Code can be a strategic move to demonstrate commitment to ethical practices. Companies that adopt the code may benefit from enhanced trust and stronger relationships with suppliers.
Additionally, businesses should review their payment practices to ensure they meet the standards outlined in the code. This includes addressing any existing payment delays, renegotiating lengthy payment terms, and ensuring that internal systems support timely invoice processing.
For SMEs, the benefits extend beyond reputation. By improving cash flow, the code provides breathing room to invest in growth, innovation, and employee wellbeing.
Conclusion: A Broader Mission for Economic Stability
The Fair Payment Code is more than just a mechanism for tackling late payments; it’s a call to action for businesses to operate with integrity and fairness. By prioritising timely payments, the government aims to strengthen SMEs, drive economic growth, and create a more resilient economy.
What sets this initiative apart is its holistic approach. The introduction of the Disability Finance Code highlights the government’s commitment to addressing systemic barriers faced by underrepresented groups, ensuring that the economic potential of all entrepreneurs is realised.
For business owners and debt recovery professionals alike, the message is clear: collaboration, transparency, and fairness are the keys to a thriving business environment. Those who embrace these values will not only comply with new standards but also position themselves as leaders in a more equitable and prosperous economy.
In the longer term, it’s worth considering how this initiative might influence other areas of business regulation. Could we see similar frameworks introduced for fair hiring practices, sustainability, or even innovation funding? Only time will tell, but one thing is certain—those who adapt to these changes now will be well-prepared for the future.
