The Government has unveiled legislation to crack down on late payments to small businesses, which ministers are describing as a “landmark” intervention to improve cash flow for millions of firms across the UK.
The Small Business Protections Bill, formerly the Commercial Payments Bill, will introduce new rules requiring large companies to pay smaller suppliers within strict time limits, along with tougher penalties for persistent late payers.
Ministers say the reforms will end what they describe as the “scourge of late payments”, which they argue forces small firms to spend significant time chasing unpaid invoices rather than focusing on growth and jobs.
The legislation will introduce a statutory 60-day cap on payment terms for large firms dealing with smaller suppliers, alongside mandatory interest on overdue invoices set at 8 per cent above the Bank of England base rate.
Prime Minister Keir Starmer said: “Small businesses are the backbone of our economy – run by people who take risks, create jobs and keep communities going. This government is firmly on their side.
“Too many small business owners are spending hours chasing money they are owed and when payments don’t come through, the cost is personal. It’s about whether you can pay your staff, keep the lights on, or invest in your future.
“Today we’re changing that with the toughest action on late payments in a generation, so small businesses get paid on time and get the backing they need to grow, create jobs and serve their communities.”
It will also ban the withholding of retention payments in construction contracts and give the Small Business Commissioner enhanced powers to investigate payment practices, resolve disputes and issue fines running into the tens of millions of pounds for repeat offenders.
The Government said late payments currently contribute to the closure of 38 small businesses a day, a figure it says highlights the scale of the issue facing sole traders, freelancers and family-run firms.
The Office of the Small Business Commissioner has already recovered more money for small firms in the past year than in the previous four years combined, according to government figures.
The reforms will also require boards or audit committees of persistently late-paying large companies to publish explanations of their payment performance and outline steps to improve compliance.
Business Secretary Peter Kyle said: “Costing the UK economy £11 billion every single year, late payments choke growth, cost jobs, and force too many good businesses to close. That ends today.
“Through this landmark bill we are delivering the toughest payment reforms in over a generation, to give the UK the strongest legal framework in the G7, and back small businesses with the certainty they need to grow and thrive.”
Minister for Small Business and Economic Transformation, Blair McDougall said: “I’ve spoken to too many business owners who do everything right and are still left lying awake at night wondering how they’ll pay their staff or cover their bills because they haven’t been paid what they’re owed.
“Introducing this Bill is about standing up for those people, to restore fairness, dignity and security for small business owners and the self-employed, so they can focus on doing what they do best: growing their businesses and the economy.”
Ministers argue the changes will help strengthen supply chains, improve productivity, and support economic growth by improving cash flow across the small-business sector.
The Bill builds on the Late Payment of Commercial Debts (Interest) Act 1998, which previously set out the framework for tackling delayed payments, but officials say the new measures represent the toughest regime in the G7.
A Government spokesperson said the package was part of a wider effort to support small businesses through pressure from inflation, higher borrowing costs and regulatory burdens.
FSB Policy Chair Tina McKenzie said: “Tackling late payment is one of the biggest things the government can do to help small businesses grow. FSB is proud to have worked with ministers on these reforms and it’s encouraging to see the voice of small firms reflected in legislation.
“Giving audit committees a clear role in payment practices is a vital step in changing late payment culture.”
Alongside the Bill, ministers highlighted wider policies including business rates relief for smaller premises, incentives for firms hiring apprentices and efforts to improve access to finance through expanded lending programmes.
The announcement comes as the Prime Minister and Business Secretary prepare to meet small business owners and representatives from the Federation of Small Businesses at Downing Street to mark what the Government is calling a “historic moment” for the sector.
Officials say the measures form part of a broader Small Business Plan aimed at improving access to finance, simplifying government procurement and centralising support services for firms.
Critics are likely to scrutinise how effectively the proposals will be enforced in practice, particularly given longstanding concerns about a late-payment culture among some large corporates.
But ministers insist the legislation will fundamentally change how businesses are paid in the UK, marking a significant shift in the balance of power between large firms and smaller suppliers.
Leave a Comment