The government is preparing to introduce a new small business strategy aimed at addressing persistent challenges faced by small and medium-sized enterprises (SMEs), with a particular focus on tackling late payments. According to today's report by the Financial Times, the strategy, which is expected to be published in August, will include legislative and regulatory measures designed to improve payment practices among large companies and enhance support for SME growth.

Late payments are a major issue for SMEs, often forcing them to seek emergency financing or delay payments to their own suppliers and employees. According to a recent report commissioned by the Federation of Small Businesses (FSB), 52% of small businesses, approximately 2.8 million firms, are affected by late payments. Delays in payment can severely impact cash flow, with over a quarter of SMEs indicating that they have had to rely on short-term financing as a result. Many SMEs resign themselves to writing off late payments as bad debts, due to the time and cost of chasing them. 

The government’s proposed reforms aim to increase transparency and accountability among large companies. Under draft legislation, the Companies (Directors’ Report Payment Reporting) Regulations 2025, companies with more than 250 employees will be required to disclose their payment performance in their annual reports. This will include data on how long it takes to pay suppliers and the percentage of payments made within agreed terms.

Currently, payment data is submitted to a government portal and made available online, but this is not widely accessed. By embedding payment performance in annual reports, the government hopes to make poor practices more visible to stakeholders and potentially increase scrutiny. Audit committees will also be given greater responsibility to oversee payment practices and hold executive teams accountable for delays.

Beyond late payment reform, the government’s strategy includes several other initiatives aimed at supporting SME growth and resilience. A new “business growth service” will consolidate existing public sector support schemes under a single umbrella, intended to streamline access to resources and advisory services for small businesses.

The strategy is also expected to address concerns around the widespread use of personal guarantees in SME lending - an issue which has previously been subject of a “super-complaint” to the FCA by the FSB: Personal guarantees in the spotlight as FCA asked to investigate lending practices. The FSB claim that the practice imposes a “straightjacket” on business growth and exposes individual entrepreneurs to the risk of disproportionate personal loss. As most SME lending falls outside the FCA's remit (and they therefore have limited power to intervene), the industry will follow with interest the government's proposals in this regard.

The proposed reforms come at a time when SME insolvency rates remain high. While overall corporate insolvency rates in England and Wales fell 8% month on month from May to June, smaller businesses account for the majority of casualties. Analysis by PwC indicates that approximately 97% of insolvencies in June were companies with annual revenue below £1m or assets under £5m. SMEs are particularly vulnerable to economic headwinds and uncertainty, due to limited financial buffers and exposure to economic volatility. 

Only time will tell whether the government's strategy has any concrete effect on reducing the incidence of late payments. However, it is to be hoped that increased scrutiny and efforts to address issues facing SMEs will, in the long-term, help to prevent avoidable insolvencies and support business sustainability.