By Daniel Hunter

The government is aware that late payment continues to be a big problem for many of our small and medium sized businesses with 85% saying that they have experienced this over the last two years.

In further action taken by the government to target this issue, the Prime Minister is also announcing that the government will be launching a consultation on tackling late payment later this year where we will be calling for views on a range of questions including:

- How we can encourage greater oversight and responsibility for payment policies at senior management and board level.
- What can be done to increase transparency around which companies are good payers and which ones are not.
- How the Prompt Payment Code can be strengthened, and whether there is more that can be done to hold companies to account against it.
- Whether more can be done to enforce existing legislation, including the provisions on payment terms — for instance the prohibition of ‘grossly unfair’ payment terms.
- What can be done to encourage more companies to make use of their existing statutory right to interest for late payments.
- Whether there is a case for further legislation or penalties.
- Whether government can do more to help SMEs to help themselves, including through new technologies and services like electronic invoicing and mobile payments.

On Employment Allowance, Prime Minister David Cameron said: "As I said earlier this month, it’s businesses that get wages in people’s pockets, food on their tables, hope for their families and success for our country. Small business and entrepreneurs are the lifeblood of our economy and this government is firmly on their side. An ambitious and thriving small business sector is vital for steering the economic recovery in the right direction and helping us to succeed in the global race.

"We are determined to do everything we can to ensure that our small firms can be successful and prosperous and people can fulfil their aspirations. The Employment Allowance, which will benefit up to 1.25 million businesses and result in around 450,000 businesses seeing their employers’ National Insurance contribution payments stop completely, is another example of the action that this government is taking to back small businesses and help people get on. Last week, we helped people get on the housing ladder and own shares. This week, we’re helping small businesses start and expand. This government is one hundred percent backing people who work hard and want to get on in life. And we’re going to finish the job we started."

On tackling late payment, Prime Minister David Cameron said: "It’s not right that suppliers are not getting paid on time for the work they do and the services they provide and I know that late payment can have devastating effects on our small and medium sized businesses. I am determined to make Britain the best place to start, grow and do business and to back people who want to work hard and get on. The government has already taken steps to help address this issue but I am clear that more needs to be done to build a business culture across all sectors of the economy that sees the fair, prompt and reliable payment of suppliers become a core corporate responsibility which is taken seriously at the most senior levels."

Katja Hall, CBI Chief Policy Director, said: "Late payment is a serious issue for all businesses but particularly for smaller firms, as cash flow is their life blood. Businesses already have a number of routes for recourse if they are paid late, but the reality is that few choose to act on late payment for fear of fall out with their customers. The CBI backs the Prompt Payment Code but there are also other ways of addressing late payment — for example some suppliers will choose to work with customers through supply chain finance agreements. As the voice of small, medium and large businesses, the CBI welcomes this consultation and looks forward to working closely with government to improve payment terms in the UK."

John Allan, National Chairman, Federation of Small Businesses, said: "The NICs Employment Allowance is a measure our members have warmly welcomed. It will have a positive impact on small firms and the economy when it comes into force next spring. Our members have said they’ll spend the savings on their business, either through investing in the business, increasing wages or taking on staff.

"Late payments is an increasing issue for our members. Being paid late or given extended terms can severely hamper many small firms. They simply don’t have the same cash-flow buffer as a large businesses, so being paid on time can be the difference between being able to pay staff and not. Furthermore, when a small firm is paid late they then can become late payers themselves. We therefore welcome the focus this important issue is now receiving and look forward to putting the views of our members forward in the consultation, in particular to strengthen the government’s Prompt Payment Code and make it enforceable."

Ms Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation, said: "Payment terms can be a major issue for smaller firms, particularly given the financing constraints and uncertainty they face. Given the link between this and weak investment, government continues to face questions about what further action is needed on payment terms. We therefore welcome further efforts to provide more visibility on current practices and the extent to which particular challenges may be impacting on companies."

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