Fines for the worst offending big businesses are among new government measures aimed at tackling late payments suffered by small firms.
The ability to impose financial penalties, which the government said could be millions of pounds for some persistent tardy payers, are among the new powers that will be given to the Small Business Commissioner.
The Commissioner, who is currently entrepreneur and SMEWeb columnist Emma Jones, will also have the ability to settle late payment disputes out of court through a new adjudication function, and be able to investigate big businesses suspected of poor payment practices or inaccurately reporting payment performance.
Other changes include a 60-day cap on payment terms for large firms when paying smaller suppliers and mandatory interest on late payments. All commercial contracts will need to include statutory interest set at 8% above the Bank of England base rate.
For example, if a small business is owed £10,000 and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest (£10,000 plus £193.15 interest plus £100 compensation).
Additional measures are boards or audit committees of persistently late-paying large companies being required to publish explanations for poor payment performance and the actions they are taking to address it and a proposal to ban the withholding of retention payments under the terms of construction contracts.
The changes have been announced as the government published its response to the late payment consultation launched last year.
Ministers says the measures will be the toughest in the G7 and strengthen legislation on late payments, first laid out in the 1998 Late Payment of Commercial Debt Act.
The consultation received strong support from small businesses and business groups for an expansion of the Commissioner’s powers, with 89% of the 867 respondents backing the introduction of fines.
Late payment costs the UK economy an annual £11 billion, with research showing that 38 businesses close every day because they are not paid on time, and business owners spend 86 hours a year chasing invoices.
Another study released last month said 40% of SMEs have been unable to pay staff on time due to delays in invoices being paid, while analysis of payment performance data showed that around £8.75 billion of supplier invoices were paid late by big UK companies in the six months until December 2025.
Business secretary Peter Kyle 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 – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”
Small business minister Blair McDougall said:
“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.”
Small Business Commissioner Emma Jones CBE said:
“I am 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.
“I work with many firms, including those on the Fair Payment Code, who see the value of prompt payment to their business, but for too many late payments and long payment times persist with little accountability.
“These reforms will reduce the hours spent chasing debt, allowing small businesses to focus on more productive and enjoyable growth.”
Advice for small businesses on tackling late payment
- Small Business Commissioner: Top tips to contract well and get paid on time
- How SMEs can reduce late payment from customers
- Tackling late payments in an uncertain business landscape
- Chasing late payments? Small Business Commissioner can help