Large British companies that repeatedly delay payments to suppliers face multi-million pound fines. The new legislation aims to combat late payment practices and protect small businesses.
The reforms announced by the Department of Business and Trade will give the Small Business Commissioner expanded enforcement powers, allowing him to investigate poor payment behavior and punish persistent offenders.
At the heart of the new rules is a mandatory 60-day payment window for all commercial contracts with companies with an annual turnover of over £54 million.
Suppliers will also be given the right to charge statutory interest on overdue invoices at 8 percentage points above the Bank of England base rate, significantly increasing the cost of late payments for larger businesses.
Companies found to regularly violate payment standards must publicly disclose their practices in annual reports, including statements and improvement actions taken.
Business Minister Peter Kyle said the measures were the most significant overhaul of payments laws in a generation.
“It is simply unacceptable that so many businesses have to close due to late payments,” he said. “These are the strongest and most robust changes to payments laws in over a generation.”
The government also confirmed it will consult on reforms to retention payments in the construction sector, a long-standing problem where funds are withheld and sometimes lost when a contractor becomes insolvent.
Industry groups largely welcomed the reforms, calling them a long-overdue intervention on a problem that has plagued SMEs for decades.
Federation of Small Businesses policy chair Tina McKenzie said the measures would help prevent large companies using smaller suppliers as a source of “free credit”.
However, she cautioned that a 60-day payment window still does not reflect best practices and argued that a 30-day standard should remain the long-term goal.
Late payments are widely considered to be one of the biggest barriers to SME growth, impacting cash flow, investments and hiring decisions. Government research suggests that dozens of businesses close each year as a direct result of late payments.
Small Business Commissioner Emma Jones said the new powers would help reduce administrative burdens on smaller businesses.
“Less time chasing debt means more focus on growth,” she said, adding that stronger enforcement will help change behavior in the market.
The legislation is expected to be introduced as soon as parliamentary time allows. Ministers say they will assess companies’ preparedness before imposing contract changes.
The reforms mark a significant shift toward a more interventionist approach to payment practices as policymakers seek to rebalance relationships between large companies and their smaller suppliers.
For large companies, the message is becoming increasingly clear: late payments are no longer just a commercial problem, but are becoming a regulatory and reputational risk.
