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
Reaction to late payment announcements
Daniel Woolf, head of policy and government relations, Enterprise Nation:
“At a time when small business budgets are being squeezed from every direction, getting paid on time is a cash flow essential.
“We particularly welcome the requirement for boards and audit committees to explain poor payment performance publicly. That was a central ask in our submission.
“Late payment only changes when it becomes a governance issue, not just a finance one.
“The detail will matter. We want to see anti-regression protections so businesses already paying in 30 days aren’t nudged towards the new 60-day ceiling, a clear pathway to 45 days as behaviour improves, and the 30-day dispute verification window we proposed to stop buyers gaming the system.”
Vicks Rodwell, managing director, IPSE:
“The self-employed have dealt with late payment for so many years that many no longer expect clients to pay on time. Today’s announcement signals a real intention to shift the culture around payment, and that gives freelancers something they haven’t had for a long time: a sense that things might finally change.
“When payments are delayed, it’s our smallest businesses that feel the impact straight away. They’re trying to keep their businesses moving, manage everyday life and still produce high‑quality work, all while the money they’re owed is sitting with the client. Too many have spent hours chasing invoices, knowing they have very little leverage when a payment is dragged out.
“Stronger enforcement and real consequences for those who repeatedly pay late could begin to break that cycle and give the self-employed the confidence and certainty they’ve been missing.”
Liz Barclay, Insitute of Directors special advisor for small business and entrepreneurship and former Small Business Commissioner:
“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.”
Dr David Crosthwaite, chief economist, Building Cost Information Service:
“The government’s reforms represent a positive step towards improving payment discipline. However, insolvency risk in construction is typically driven by a combination of factors.
“Alongside cashflow pressures, firms continue to operate with tight margins, cost volatility and exposure to project-specific risks, as well as higher employment and business costs, including recent increases in employer-related costs, which are adding to overall cost pressures.
“In this context, late payment can act as a trigger in an already fragile financial position.
“Proposals to address retention practices are particularly relevant, given the risk to firms when upstream contractors become insolvent.
“However, retentions have traditionally played a role in managing defects liability and quality assurance, so any changes will need to ensure that appropriate mechanisms remain in place to maintain delivery standards.
“There may also be scope to strengthen payment security further through mechanisms such as project bank accounts, which can support more reliable and timely distribution of funds across supply chains.
“The reforms come at a time when firms are still managing ongoing cost pressures and economic uncertainty. Improving payment practices should support greater financial resilience across the sector, although the overall impact will depend on how these measures interact with wider market conditions.”
Brian Berry, chief executive, Federation of Master Builders:
“Small, local builders have been battling a culture of slow and unfair payment for years, and it hits them harder than anyone else in the supply chain. Too many SMEs are kept waiting by major contractors who treat long payment terms as standard business practice. If these reforms finally force the worst offenders to change their behaviour, it will give our members more certainty to plan workloads, invest in kit, and operate on a level playing field.”
“The proposed ban on withholding retention payments in construction is especially significant for our members. Retentions have been a major issue for small businesses for far too long, as too many SMEs are left carrying the risk when money they’ve already earned is held back for months on end. What our members want is simple: fair, reliable payment for work done, and a supply chain that treats small builders with the respect they deserve.”
Glenn Collins, head of technical and strategic engagement, ACCA UK:
“It is good to see a government taking such decisive action on the scourge of companies not paying promptly. Importantly the proposed regulation focuses on large businesses not paying smaller businesses rather than a blanket approach to all.
“With the overwhelming evidence that late payments is a significant drag on the UK economy these proposals promise to significantly end the problem of poor payment practices. We would suggest that all UK businesses should welcome this step.
“Inevitably there will be issues that companies will have to overcome when the changes are implemented. We look forward to working with the Small Business Commissioner, our members and the wider business community to ensure the required technical, accounting and auditing adjustments are not onerous to implement.”
Alan Vallance, chief executive, ICAEW:
“Late payments are damaging to the economy. Paying suppliers late threatens jobs and the survival of otherwise productive businesses. Time spent chasing payments is time that is not being used by businesses to win new work and grow.
“The new powers for the Small Business Commissioner will enable targeted and proportionate action to be taken against the small minority of persistent late payers, as well as promoting cultural change on late payments.
“It’s vital that these powers are used proportionately to tackle egregious cases of late payment and that they do not create administrative burdens or impose additional costs on the majority of companies at a time when our members are saying doing business is too expensive and too complicated.”
Rob Burlison, director of global corporate affairs and public policy, Intuit QuickBooks:
“For many small business owners, a late payment can quickly create pressure on cash flow, making it harder to cover costs, pay staff and plan ahead. Delays in payment are not just inconvenient; they can have a direct impact on the day-to-day running of a business, and they’re the reason 38 businesses shut down every day.
“Over 60% of small businesses have invoices overdue by more than 30 days, with an average of £21,400 outstanding. This highlights how widespread the issue remains and why consistent, timely payment practices are so important for business stability and confidence. The UK economy is losing out on £11 billion every year due to late payments, demonstrating that when small businesses are hit, the wider economy feels it.
“The UK government’s new payment reforms are a positive step towards improving payment practices and creating greater accountability across supply chains. The government is right to act, but it’s also up to businesses to take responsibility. This is a catalyst for cultural and organisational change.
“Large organisations need to recognise the influence they have across their supply chains and lead by example. It’s critical that these businesses treat prompt payment as a non-negotiable and a core tenet of their business operations or small businesses will be the ones paying the price.”
Debbie Petford, legal and commercial director, Building Engineering Services Association:
“We have been waiting a long time for meaningful reform backed by legislation, and the proposed ban on retentions is a critical part of that. Too many businesses have struggled or failed because they have been denied the lifeblood of healthy cashflow.”
“This consultation was a once in a generation opportunity to address poor payment practices, and it is extremely positive to see the government taking decisive action. The collapse of major firms in recent years has only reinforced how vulnerable smaller contractors are within the supply chain.”
“While there is still work to do on implementation, this is a major step towards creating a business environment where firms can thrive, not just survive.”