Time to Pay Up: Government unveils toughest crackdown on late payments in over 25 years

              

Small suppliers, long beleaguered by overdue invoice payments and long payment terms in their contracts with customers are waking up this morning to an announcement that Government is to put an end to the practice. The Press Release from Government is available to read below.

It basically says that suppliers will be paid in a maximum of 60 days to pay and that the Small Business commissioner will be given powers to fine businesses that don’t stick to the new rules.

Small businesses have been going bust at the rate of 38 a day when they’ve not been paid on time or have had to wait a long time as set out in their contractual agreements. If the money isn’t coming in when you expect it to, it can be impossible to manage your cash flow. If you have to borrow, if you can borrow, to see you over the gap, that reduces the amount of money you have available for your business. Small suppliers also spend 89 days a year chasing overdue payments which is time they could be spending on their business. All in all Department for Business and Trade research shows that late payments cost the economy £11bn annually. Productivity and growth benefit if suppliers are paid on time and in good time.

The less often talked about aspect of all this is the worry about paying your own suppliers, your employees and your bills if the payments aren’t coming in by the due date. That leads to sleepless nights, mental health issues and closed businesses. Some micro businesses have told us they’re paying themselves very little or nothing. The charity Business Debtline, which offers free business and debt advice to small businesses and sole traders who are in financial difficulty, tells us that about half of the people coming to them for help have been having problems with overdue or long payments.

This doesn’t just affect small suppliers. If they go out of business their customers have to spend time finding new, reliable sources of supply and the whole supply chain can be affected. Not all big businesses are bad payers. Many have neglected to invest in upgrading systems and processes. Those that do pay well are usually the ones that understand the importance of working in partnership with their suppliers and supply chains.

For all these reasons the Government is determined to tackle this problem with maximum payment terms of 60 days, automatic interest and compensation payments to small businesses that haven’t been paid as agreed, greater transparency on the part of big firms in the annual reports about their payment performance and the power for the Small Business Commissioner to fine persistent late payers.

All this is very welcome. I worked on these reforms while I was Small Business Commissioner. However, today’s press release and the announcements we expect during the day are headlines only. The devil will be in the detail. Some of the proposals will need legislation and that will take time. There will also be time to implement the changes once the details have been agreed. Nothing is going to happen overnight, and we want to see all loopholes plugged and no room left for workarounds by firms determined to circumvent the new rules.

Department Press Release 24^th March 2026

Time to Pay Up: Government unveils toughest crackdown on late payments in over 25 years

• UK is backing small businesses with the toughest laws on late payments in the G7
• Sweeping new powers for the Small Business Commissioner, including multi-million-pound fines to hold big businesses and persistent offenders to account
• Measures will help tackle cost of living for entrepreneurs and SME owners by ensuring they are paid on time and prevent the abuse of retention payments in construction

Small businesses will be paid on time – that’s the clear message from government today [24 March] as it cracks down on late payments, with the largest set of reforms in over a generation.

The Small Business Commissioner will be given sweeping new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders – with fines worth tens of millions for firms that persistently pay late or fail to comply with the new laws.

The measures will tackle a problem costing the UK economy £11 billion every year and ease the cost of living for entrepreneurs and SME owners who are often forced to wait months – or even years – to receive money they have already earned and having to chase endlessly to receive it.

Some 38 businesses shut their doors every single day because they are not paid on time – the equivalent of 266 a week, and well over a thousand in any given month.

Every small business owner, including tradespeople, freelancers, family firms and the self-employed, have to waste time and money chasing unpaid invoices when they could be growing their business.

These measures, which will be the toughest in the G7, build upon and strengthen legislation on late payments, first laid out in the 1998 Late Payment of Commercial Debt Act, over 25 years ago. They go further than any previous government and will boost our economy and give small businesses better cashflow.

The changes will include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.

For example, if a small business is owed £10,000 by one of its customers 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).

We also propose to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms losing retentions to insolvency or non-payment.

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.”

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.

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