Small businesses across the UK will now receive timely payments as the government implements its most significant crackdown on late payments in over 25 years.
The Small Business Commissioner will gain extensive powers to investigate late-payment practices, resolve disputes, and impose fines of tens of millions of pounds on firms that consistently fail to pay on time.
These reforms aim to address an issue that costs the UK economy £11 billion annually and forces entrepreneurs, freelancers, and family businesses to waste valuable time chasing overdue invoices.
Alarmingly, around 38 businesses close every day due to late payments.
Key measures include a 60-day cap on payment terms for all large firms when paying smaller suppliers.
There will also be mandatory interest on late payments set at 8% above the Bank of England’s base rate, along with statutory compensation. Additionally, plans are in place to ban retention withholding in construction contracts, thereby protecting small businesses from insolvency and non-payment.
These changes strengthen the laws originally established in the 1998 Late Payment of Commercial Debts Act and are expected to improve cash flow for small businesses while bolstering the UK economy.
For instance, a £10,000 invoice paid 60 days late will now incur £293.15 in interest and compensation, ensuring that small firms are adequately compensated for delays.
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.
FSB Policy Chair Tina McKenzie said: “Late payments are a blight on our economy, so FSB is pleased to have worked in partnership with the Government to deliver the toughest legislation in the G7. The new laws will finally bring a stop to big businesses using their small suppliers as sources of free credit.
“For the first time, audit committees and boards will question and challenge poor payment performance, publish it in annual reports for all to see, and put it right. Paying in 60 days is not prompt – but strengthening that as the absolute maximum cap after years of dithering is a good step towards encouraging payments in 30 days across all supply chains. Improving the Small Business Commissioner’s powers will also help, mandating CEO’s of Britain’s poor payers to take the phone call.
“This is real progress, and we’ll keep working with the Government to make sure new laws are brought in as soon as possible.”
Minister for Small Business and Economic Transformation, 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.”
Emma Jones CBE, Small Business Commissioner said: “We are 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. These reforms will reduce the hours spent chasing debt allowing small businesses to focus on more productive and enjoyable growth.”
Right now, some small businesses have more cash in the bank because the Small Business Commissioner recovered three times more overdue invoices in 2025 than in 2024. We will bring this benefit to the whole economy.
Today’s measures follow the launch of the Small Business Plan by the Prime Minister last year, which in addition to laying out late payments plans, also launched the Business Growth Service, which is already transforming the government support offer for small firms, and increased access to finance for SMEs and entrepreneurs with a massive £4 billion finance boost.
This is a more interventionist government, backing the British business community with landmark reforms that will also help to control inflation and make our economy more resilient from global shocks.
Debbie Williams, co-founder of John Williams Heating Services, said: “As a family-run business that has served our community for more than 20 years, we see first-hand the strain that late payments place on small companies. Cashflow pressures don’t just affect the balance sheet — they impact our ability to take on apprentices, invest in training and continue providing reliable service to local families.
“We welcome the Government’s focus on tackling late payments, as timely and fair payment practices are essential for the stability and growth of businesses like ours.”
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