The UK government has set out plans to tackle late payments, placing new legal obligations on large companies and strengthening protections for small business suppliers.
The reforms, announced by small business minister Blair McDougall, follow sustained pressure from the Federation of Small Businesses (FSB) and aim to address a problem that continues to constrain cash flow across the UK economy.
Late payments remain a persistent structural issue. Government figures suggest around 38 small businesses close each day as a result of unpaid invoices, with an estimated £11 billion annual cost to the UK economy. While such figures are widely cited, the underlying trend is clear: delayed payments continue to disrupt otherwise viable firms.
At the centre of the proposals is an expansion of powers for the Small Business Commissioner. The role will shift from advisory to enforcement, with authority to investigate poor payment practices, resolve disputes and impose financial penalties on repeat offenders. The scale of those fines could reach into the tens of millions, although details on thresholds and enforcement remain to be tested in practice.
Alongside this, the government intends to introduce a statutory 60-day cap on payment terms between large businesses and small suppliers. While this formalises existing expectations, it stops short of mandating 30-day terms, which many in the small business community continue to argue should be standard.
A mandatory interest charge on late payments will also be introduced. Crucially, this will apply automatically rather than requiring small firms to pursue claims themselves. In principle, this removes a longstanding imbalance, although its effectiveness will depend on enforcement and compliance.
Larger companies will face additional scrutiny. Boards and audit committees will be required to publish payment performance data and account for delays. This measure, developed with input from the FSB, is designed to increase transparency and apply internal pressure within organisations where late payments persist.
Jennifer Thomas, regional manager at the FSB, described the reforms as a “major milestone” following more than 20 years of campaigning. She said increased accountability at board level and stronger enforcement powers were central to the organisation’s recommendations.
The proposals also include further consultation on retention payments in construction contracts. These arrangements have long been criticised for exposing small firms to the risk of non-payment, particularly in cases of insolvency.
Late payments impose a measurable burden beyond balance sheets. Small business owners are estimated to spend dozens of hours each year chasing overdue invoices, diverting time from growth and investment. As a result, the wider economic impact extends beyond individual firms into supply chains and productivity.
The government argues that improving payment practices will support business confidence and unlock growth. However, as with previous attempts to address late payments, the effectiveness of these reforms is likely to depend less on their intent and more on how consistently they are enforced.
