Small businesses will be paid on time – that’s the clear message from government today as it cracks down on late payments, with the largest set of reforms in over a generation.
The Small Business Commissioner will be given sweeping new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders – with fines worth tens of millions for firms that persistently pay late or fail to comply with the new laws.
The measures will tackle a problem costing the UK economy £11 billion every year and ease the cost of living for entrepreneurs and SME owners who are often forced to wait months – or even years – to receive money they have already earned and having to chase endlessly to receive it.
Some 38 businesses shut their doors every single day because they are not paid on time – the equivalent of 266 a week, and well over a thousand in any given month.
Every small business owner, including tradespeople, freelancers, family firms and the self-employed, have to waste time and money chasing unpaid invoices when they could be growing their business.
These measures, which will be the toughest in the G7, build upon and strengthen legislation on late payments, first laid out in the 1998 Late Payment of Commercial Debt Act, over 25 years ago. They go further than any previous government and will boost our economy and give small businesses better cashflow.
The changes will include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.
For example, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest (£10,000 plus £193.15 interest plus £100 compensation).
They also propose to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms losing retentions to insolvency or non-payment.
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.
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.”
James Butcher, Deputy Chief Executive of the National Federation of Builders (NFB), said:
“Poor payment practice closes businesses, hinders growth and has been a persistent challenge for the construction industry. After years of tweaks without teeth and promises without action, this government has acted swiftly to announce measures that industry has spent decades calling for.”
Reforms will require Primary and Secondary legislation, and the construction industry will see further engagement to consider how the reforms will operate with their contract models.
The Government has outlined the following headline measures:
- 60-day cap on payment terms on all large firms when paying smaller suppliers.
- New mandatory interest on late payments.
- All commercial contracts to include statutory interest set at 8% above the Bank of England base rate.
- New powers for the Small Business Commissioner, including adjudication of payment disputes.
- Persistent poor payment offenders may face multi-million-pound fines.
- A ban on retentions, post implementation consultation.
Rico Wojtulewicz, Director of Policy and Market Insight at the NFB, said:
The Government must be congratulated for staying the course to tackle poor and late payers. Too many before them have shirked the responsibility.
For construction, the main challenge will be the ban on retentions. Retentions are used to ensure performance, compliance and completion but we understand why the Government’s hand has been forced by unscrupulous businesses abusing them to pay less and/or balance shaky accounting.
We therefore thank the Government for hearing our recommendation to further consult on the ban’s implementation. This period creates breathing room for adjustment and offers time to progress alternatives, such as accessible surety bonds or insurance.”
On the broader industry challenges relating to retentions, Wojtulewicz added:
“We will also be reminding the Government that they must continue to pursue the planning and procurement reforms intended to enable work pipelines for SMEs and regional construction companies. The use of retentions grew because regulatory costs made it difficult for constructors to plan work pipelines and afford direct employment, consequently increasing a reliance on sub-contractors where performance was managed through the retention process. Should the Government’s planning and procurement reforms succeed, thousands of businesses may again become financially resilient enough to directly employ.”
