Government unveils toughest crackdown on late payments in over 25 years

Small businesses across the UK are set to benefit from sweeping new protections as the government announced the most significant crackdown on late payments in more than a generation, promising tougher enforcement and stronger rights for suppliers.

Under the ‘Time to Pay Up’ reforms, ministers say the UK will introduce the toughest late payment laws in the G7, targeting a long-standing issue that costs the economy an estimated £11 billion annually and forces dozens of firms to close each day.

At the heart of the changes is a major expansion of powers for the Small Business Commissioner, who will now be able to investigate poor payment practices, resolve disputes, and impose fines worth tens of millions of pounds on large companies that repeatedly fail to pay on time.

“Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable,” he said. “These reforms will transform the fortunes of small businesses and make their day-to-day lives much easier.”

Tighter rules and faster payments

The reforms introduce a strict 60-day maximum payment term for large firms paying smaller suppliers, alongside mandatory interest on overdue invoices set at 8% above the Bank of England base rate.

This means businesses owed money will automatically receive compensation if payments are delayed. For example, a £10,000 invoice paid 60 days late would accrue more than £290 in interest and compensation.

The government will also move to ban the controversial use of retention payments in construction contracts, a practice that has often left smaller firms out of pocket when larger contractors become insolvent or withhold funds.

In addition, large companies with persistent late payment records will be required to publicly explain their performance, with boards and audit committees held accountable for improving practices.

A widespread problem

Late payments have long been a major burden for small businesses, with around 38 firms closing every day due to cashflow pressures linked to unpaid invoices. Entrepreneurs, freelancers and family-run firms frequently report spending significant time chasing payments instead of focusing on growth.

She said the new rules would prevent large firms from using smaller suppliers as “a source of free credit” and introduce long-overdue accountability at board level.

“This is real progress,” she said, while noting that a 60-day cap should be seen as a maximum, not a norm, with a longer-term goal of 30-day payments across supply chains.

Relief for business owners

“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.”

“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.”

The announcement builds on the government’s wider Small Business Plan, which includes a £4 billion boost to SME finance and expanded support through the Business Growth Service.

Ministers say the crackdown signals a more interventionist approach aimed at strengthening the resilience of the UK economy, improving cashflow for small firms, and helping to ease broader cost-of-living pressures.

With enforcement set to tighten and penalties rising sharply, the message from government is clear: pay on time or pay the price.