The UK government has introduced new measures aimed at addressing the pervasive issue of late payments, a problem costing small businesses an average of £22,000 a year and contributing to the closure of 50,000 firms annually.

The initiative, announced today, includes a consultation on potential new laws to hold larger firms accountable and improve cash flow for small businesses and the self-employed, delivering on the government’s mission to grow the economy.

One of the key proposals is new legislation requiring large companies to include detailed payment reports in their annual disclosures. It says this move will ensure transparency, allowing company boards and international investors to scrutinize how businesses treat their smaller counterparts.

The government will also enhance enforcement of existing regulations, which mandate large firms to report payment performance twice a year on GOV.UK.

Non-compliance could lead to criminal prosecutions, with directors potentially facing unlimited fines and criminal records.

Business Secretary Jonathan Reynolds said: "Late payments are simply unacceptable. When cash flow runs dry, small firms go under. We must hold larger businesses to account and foster an environment that supports growth and jobs."

The consultation, set to launch in the coming months, will explore additional measures to tackle poor payment practices.

It comes as research from the Federation of Small Businesses (FSB) reveals that 52% of small UK firms suffer from late payments, with around 2.6 million SMEs affected each quarter. Many businesses report waiting months for payments, often forced to take out personal loans to manage cash flow.

Prime Minister Keir Starmer added: “We’re determined to back small businesses by unlocking their barriers to growth, and stamping out late payments is at the heart of this,” Starmer said. He highlighted the financial burden late payments place on businesses, stating that the new measures are long overdue after years of delay.

In addition to the new transparency requirements, the government announced the introduction of a new Fair Payment Code, replacing the previous Prompt Payment Code.

Businesses that meet the required payment standards can earn gold, silver, or bronze status, encouraging firms to pay faster and more frequently. This initiative aims to spotlight responsible companies and foster better relationships between large businesses and their smaller suppliers.

To support small businesses further, the government is focusing on a broader industrial strategy that includes reforms to business rates and efforts to increase SME exports.

The Secretary of State and Small Business Minister Gareth Thomas are set to discuss the new measures with business leaders later today, reinforcing the government's commitment to eradicating bad payment practices.

FSB Policy Chair Tina McKenzie praised the government’s actions, calling it "real change" for small businesses. “The Business Secretary has clearly recognised the importance of eradicating bad payment culture, which so devastates the UK supplier base and holds back growth,” McKenzie said.