Late payments continue to affect thousands of small businesses across the UK, placing pressure on cashflow and limiting their ability to grow and invest. The issue has been linked to business closures and wider economic strain, with long payment delays impacting day-to-day operations.
The Department for Business and Trade has announced new legislation to tackle late payments, introducing stricter rules and enforcement powers for large firms. The reforms include a payment cap, mandatory interest on overdue invoices, and expanded authority for the Small Business Commissioner.
The reforms include a 60-day payment cap, mandatory interest on overdue invoices, and expanded powers for the Small Business Commissioner to investigate and fine persistent offenders. The changes aim to improve cashflow for small businesses, reduce closures, and strengthen economic resilience.
New laws to tackle late payments
The government has introduced legislation aimed at reducing late payments and strengthening payment practices across supply chains. The reforms expand existing legal frameworks and introduce new compliance requirements for businesses.
The measures are intended to address long-standing delays in payments that have affected small firms and limited their financial stability. They are positioned as part of broader efforts to support business operations and economic resilience.
- Introduction of stricter payment rules
- Expansion of enforcement mechanisms
- Focus on protecting small business cashflow
Stronger powers for Small Business Commissioner
The Small Business Commissioner will receive expanded powers to investigate payment practices and resolve disputes between businesses. These powers include the ability to impose financial penalties on companies that consistently fail to meet payment obligations.
The reforms also strengthen the Commissioner’s role in overseeing compliance and ensuring that businesses adhere to the new standards. This is intended to increase accountability among larger firms.
Reforms affecting payment terms and interest
The new legislation introduces a 60-day maximum payment term for large firms when paying smaller suppliers. In addition, mandatory interest will be applied to late payments, set above the Bank of England base rate.
These changes are designed to standardise payment practices and ensure that businesses receive compensation when invoices are not settled on time.
- 60-day maximum payment terms
- Mandatory interest on overdue invoices
- Contractual requirement for statutory interest
Summary of policy measures
| Payment cap | Maximum 60-day payment term for large firms |
| Interest requirement | Statutory interest applied to late payments |
| Enforcement | Fines for persistent late payment practices |
Economic impact on small businesses and SMEs
Late payments have been identified as a major factor affecting small business operations, including their ability to manage cashflow and invest in growth. The reforms aim to reduce financial uncertainty and improve stability across the sector.
By ensuring timely payments, the government expects businesses to spend less time pursuing unpaid invoices and more time focusing on development and service delivery.
Construction sector and retention payment changes
The government has proposed changes to address retention payments within construction contracts. These proposals aim to prevent funds from being withheld in ways that can disadvantage smaller firms.
Consultation will take place on how these changes should be implemented, with a focus on protecting suppliers from financial risk linked to delayed or withheld payments.
Sector-specific measures overview
| Construction contracts | Proposed limits on retention payments |
| Consultation process | Engagement on implementation approach |
| Supplier protection | Measures to reduce financial exposure |
Corporate accountability and reporting requirements
Boards and audit committees of large companies will be required to report on their payment practices and outline actions taken to address delays. These disclosures will form part of broader transparency measures aimed at improving accountability.
The requirement is expected to encourage companies to review and improve internal processes related to supplier payments.
Stakeholder Comments
Ministerial Comments
Peter Kyle, Business Secretary said;
“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.”
Blair McDougall, Minister for Small Business and Economic Transformation said;
“These are genuinely game changing measures that will ensure no business, no employer, no family has to endure the strain of being left without money they have already earned.”
In Conclusion
The new measures set out a structured approach to improving payment practices across the UK economy. By introducing clearer rules, stronger enforcement, and increased transparency, the reforms aim to support small businesses and reduce financial uncertainty.
The changes are expected to contribute to more consistent payment behaviour and strengthen the overall resilience of business operations.
Sources: Department for Business and Trade, Blair McDougall MP and The Rt Hon Peter Kyle MP.
Prepared by Ivan Alexander Golden, Founder of THX News, an independent news organisation delivering timely insights from global official sources. Combines AI-analysed research with human-edited accuracy and context.
