An investigation will be opened to prevent wealthier companies from making late payments to smaller companies.
Business Secretary Grant Shapps said large companies falling behind on their payments could act as a “real barrier” for smaller businesses, hindering productivity and job opportunities.
Shapps said: “The UK’s 5.5 million small businesses are an integral part of not only our economy, but our communities as well, and this government stands firmly with them.
“The fact that so many small businesses routinely receive back pay is intolerable and is a real impediment to productivity, high-skill job creation, and ultimately economic growth.”
The government already has a team of small business commissioners investigating big companies, such as pharmaceutical giant GlaxoSmithKline, that have come under surveillance.
Shapps added, “This review will allow us to build on the success we have had so far in reducing late payments, freeing small businesses from this exploitative practice and creating a system fit for the future.”
Last year, the Commissioner’s Pay As You Go Act tightened rules to require large companies to pay smaller suppliers 95% in 30 days, down from the previous 60 days.
However, it is not a legal requirement for companies to register with the code.
Over the past two years, the government has held consultations on late payment policies and the role of the Commissioner.
On Small Business Saturday – a campaign supporting small businesses across the country – Shapps announced a new legal overhaul of the role of the commissioner, which he said “will help ensure the UK has the right arrangements in place to better support small businesses”.
The government said small businesses, which typically operate with low cash reserves, currently have more than £23.4 billion of outstanding debt in the UK.
The review will look at sector-specific progress in addressing late payments and will also include an in-depth look at the current restrictions on payment reporting and the Pay As You Go Act.
Small businesses make up 99.2% of all business people in the UK. They must have 0-49 employees to be considered junior.
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