Time to Pay Up: What the UK Government’s New Late‑Payment Crackdown Means for Small Businesses
Late payments have been a painful and persistent problem for small businesses for decades. Whether you’re a tradesperson waiting months for a contractor to settle an invoice, a family‑run firm juggling cashflow, or a freelancer chasing overdue bills, the impact is the same – stress, uncertainty, and unnecessary financial pressure.
Now, the UK Government has announced the toughest crackdown on late payments in more than 25 years, with a package of reforms designed to protect small businesses and ensure they are paid on time. As a small accountancy practice working closely with SMEs every day, we know how transformative these changes could be for your cashflow, your growth plans, and your peace of mind.
Below, we break down what’s changing, why it matters, and what you should start preparing for.
Why the UK Government Is Acting Now
Late payments cost the UK economy an estimated £11 billion every year, and the human impact is even more striking. According to government figures:
38 small businesses close every day because they are not paid on time
That’s 266 closures a week, and well over 1,000 a month
Many small business owners wait months or even years to receive money they have already earned
Time spent chasing overdue invoices is time not spent growing the business
For many of our clients, this is not just an inconvenience – it’s the difference between paying staff on time, investing in equipment, or simply keeping the doors open.
The Government has now made it clear: small businesses must be paid on time, and large firms will face serious consequences if they don’t.
Stronger Powers for the Small Business Commissioner
One of the biggest changes is the expansion of powers for the Small Business Commissioner (SBC). The SBC will now be able to:
Investigate poor payment practices
Adjudicate disputes between small suppliers and larger customers
Issue multi‑million‑pound fines to persistent late payers
Hold large firms publicly accountable for their payment performance
These powers go far beyond anything previously available and are intended to stop large companies from using small suppliers as a source of free credit.
As Emma Jones CBE, the current Small Business Commissioner, put it, the goal is simple:
“We are on a mission to make life easier for small firms by getting money moving faster through the economy.”
For SMEs, this means more support, more enforcement, and a stronger voice when dealing with larger customers.
A New 60‑Day Maximum Payment Term
Perhaps the most significant change for day‑to‑day operations is the introduction of a strict 60‑day cap on payment terms for large businesses paying smaller suppliers.
This means:
Large firms cannot set payment terms longer than 60 days
60 days becomes the absolute legal maximum
The expectation is that many firms will move closer to 30‑day terms, especially as boards and audit committees will now be required to explain poor payment performance publicly
For many of our clients who currently wait 90, 120, or even 180 days for payment, this reform alone could dramatically improve cashflow.
Mandatory Interest on Late Payments
Another major change is the introduction of mandatory statutory interest on late payments.
All commercial contracts will now be required to include:
Statutory interest at 8% above the Bank of England base rate
Fixed‑sum compensation for late payment
For example, if you are owed £10,000 and the customer pays 60 days late, you would be entitled to:
£193.15 in interest, plus
£100 compensation, giving
£10,293.15 in total
This is designed to discourage late payment and ensure small businesses are compensated when delays occur.
Construction Sector: Retention Payments to Be Banned
The Government also plans to ban the withholding of retention payments in construction contracts – a long‑standing issue that has caused significant financial strain for small contractors.
This change aims to prevent:
Retentions being lost when a main contractor becomes insolvent
Retentions being withheld for months or years
Small firms carrying the financial risk of larger projects
For construction clients, this could be one of the most impactful reforms in decades.
Greater Transparency for Large Businesses
Large companies that consistently pay late will now face public scrutiny. Boards and audit committees will be required to:
Publish explanations for poor payment performance
Set out the actions they are taking to improve
Include payment performance in annual reports
This level of transparency is intended to drive cultural change at the top of large organisations.
The Federation of Small Businesses (FSB), which worked closely with the Government on these reforms, welcomed the move. As FSB Policy Chair Tina McKenzie said:
“The new laws will finally bring a stop to big businesses using their small suppliers as sources of free credit.”
Why This Matters for Your Business
From our perspective as accountants supporting SMEs, these reforms could bring several benefits:
1. Improved Cashflow
Faster payments mean more predictable cashflow, fewer overdrafts, and less time spent juggling bills.
2. Reduced Administrative Burden
Less time chasing invoices means more time focusing on customers, staff, and growth.
3. Stronger Legal Protect
With mandatory interest and the backing of the SBC, small businesses have more leverage than ever before.
4. Greater Stability
Fewer business failures due to late payment means a healthier supply chain and a stronger local economy.
What You Should Do Now
Although the reforms are not yet fully implemented, SMEs can start preparing:
Review your payment terms and ensure they align with the new rules
Update your contracts to include statutory interest
Strengthen your credit control processes
Document late payments so you can escalate cases to the SBC when needed
Talk to us if you need help updating your terms, invoicing processes, or cashflow forecasts
We can help you put the right systems in place so you’re ready when the new laws take effect.
A Step Forward for Small Businesses
For too long, late payments have held small businesses back. These reforms – the toughest in the G7 – represent a major shift in how the UK treats its small business community.
As a small accountancy firm, we welcome these changes. We see every day how late payments affect our clients’ livelihoods, their families, and their ability to grow. Anything that strengthens your position and improves your cashflow is a step in the right direction.
If you would like help reviewing your contracts, updating your payment terms, or improving your credit control processes, we’re here to support you. Just contact your Client Manager at ATN Partnership, and let’s make sure your business gets paid on time.