The Government has introduced new legislation aimed at protecting small businesses by ensuring companies pay their suppliers within 60 days. Late payments could now result in significant fines, and boards will be required to disclose payment terms in their audit reports.
Under the new measures, the Small Business Commissioner will gain expanded powers to investigate poor payment practices, resolve disputes, and impose fines on repeat offenders. These fines could amount to tens of millions for companies that consistently fail to pay on time or comply with the new regulations.
This initiative addresses a costly issue that drains £11 billion annually from the UK economy. It also aims to alleviate financial pressures on entrepreneurs and small business owners, who often endure lengthy waits for payments they’ve already earned. Currently, 38 businesses close every day due to late payments—equivalent to 266 closures weekly and over a thousand each month.
Small business owners, including tradespeople, freelancers, family-run firms, and the self-employed, frequently spend valuable time and resources chasing unpaid invoices from ghost debtors instead of focusing on growth.
The Government asserts that these measures, touted as the toughest in the G7, build on the 1998 Late Payment of Commercial Debt Act. They represent the most significant overhaul of payment laws in over 25 years, aiming to improve cash flow for small businesses and boost the economy.
Key changes include a mandatory 60-day cap on payment terms for large firms dealing with smaller suppliers. Additionally, late payments will now incur statutory interest set at 8% above the Bank of England base rate, which must be included in all commercial contracts. For instance, if a small business is owed £10,000 and payment is delayed by 60 days, the total owed would rise to £10,293.15, factoring in interest and compensation.
The legislation also proposes banning the withholding of retention payments in construction contracts, with consultations planned for its implementation. This move seeks to protect small firms from losing retentions due to insolvency or non-payment.
Business Secretary Peter Kyle stated, “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable. We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day-to-day lives much easier. After working closely with the Federation of Small Businesses, boards or audit committees of persistently late-paying large companies will be required to publish explanations for poor payment performance and the actions they are taking to address it.”
FSB Policy Chair Tina McKenzie welcomed the changes, saying, “Late payments are a blight on our economy, so FSB is pleased to have worked in partnership with the Government to deliver the toughest legislation in the G7. The new laws will finally bring a stop to big businesses using their small suppliers as sources of free credit. For the first time, audit committees and boards will question and challenge poor payment performance, publish it in annual reports for all to see, and put it right. Paying in 60 days is not prompt – but strengthening that as the absolute maximum cap after years of dithering is a good step towards encouraging payments in 30 days across all supply chains. Improving the Small Business Commissioner’s powers will also help, mandating CEO’s of Britain’s poor payers to take the phone call. This is real progress, and we’ll keep working with the Government to make sure new laws are brought in as soon as possible.”
Minister for Small Business and Economic Transformation, Blair McDougall, shared his personal perspective: “I know first-hand how difficult late payments can be, forcing you to decide if you can afford to keep a business running, pay employees or even buy Christmas presents for your children. That is why I’m proud to be leading the charge on tackling a problem that has been left untouched for far too long. These are genuinely game-changing measures that will ensure no business, no employer, no family has to endure the immense strain of being left strapped for cash they have already earnt.”
Emma Jones CBE, Small Business Commissioner, emphasized the importance of the reforms: “We are on a mission to make life easier for small firms by getting money moving faster through the economy by tackling late payments. The measures the Government has announced today will strengthen the role of my office in taking on the worst payers, alongside ensuring small businesses have a stronger voice on payment terms and late payment interest. These reforms will reduce the hours spent chasing debt, allowing small businesses to focus on more productive and enjoyable growth.”
Liz Barclay, IoD Special Advisor for Small Business and Entrepreneurship and former Small Business Commissioner, also praised the announcement: “We welcome today’s announcements. New measures to crack down on late payments are a positive and important step in tackling this long-standing issue, which continues to place a significant burden on small suppliers across the UK.
“Too many small firms face delayed payments, either because payments are overdue or because long payment terms have been imposed in contracts by more powerful customers. Poor payment practices undermine cashflow, limit growth, and in some cases, threaten supplier survival.
“Stronger action from government, including enhanced powers for the Small Business Commissioner and clearer rules around maximum payment terms and transparency of payment performance, reflects a meaningful shift towards greater accountability and the ending of our poor payment culture.
“However, so far, this is an outline. The detail that will sit behind the proposals is crucial and implementation is urgent. Real change will also depend on robust enforcement – ensuring there are no loopholes that allow poor payment behaviour to continue unchecked through exemptions or weak compliance. We look forward to continued engagement as these proposals are developed to ensure they deliver lasting and effective change.”
Recovering Debts in the UK has never had a more important role to play given the current unstable economy.
