The UK government is preparing to introduce sweeping legislation to clamp down on late payments, in what it describes as the “toughest laws on late payments” among G7 nations.
The proposed rules will include a maximum 60-day payment term—eventually reduced to 45 days—for large companies paying small suppliers, and mandatory interest charges for late payments.
The long-awaited reforms are part of a broader strategy to support small and medium-sized enterprises (SMEs), many of which have struggled with chronic delays in payments from larger corporate clients. Under the new rules, audit committees will be legally required to oversee payment practices at board level, and repeat offenders could face multi-million-pound fines.
The move follows years of criticism over the government’s handling of payment fairness and the limited impact of past initiatives, such as the introduction of a small business commissioner and the ‘duty to report’ payment performance. Previous voluntary frameworks have failed to significantly reduce the widespread issue of late payments, with some companies taking more than 120 days to settle invoices.
“This is bold and ambitious,” said Tina McKenzie, policy chair of the Federation of Small Businesses (FSB). “It’s an encouraging commitment from the government to take the side of small businesses.”
The government estimates that poor payment practices cost the UK economy £11 billion annually, choking cashflow and hampering productivity across the SME sector. Many small business owners have long argued that delayed payments not only jeopardise their finances, but also create stress, uncertainty, and administrative burden.
Under the new proposals, large companies will be automatically charged interest if they miss payment deadlines, while the powers of the small business commissioner will be expanded to include the ability to levy fines against serial late payers. The commissioner will also gain enforcement powers to pursue repeat offenders and escalate disputes more rapidly.
The reforms are part of a wider package of support for the SME sector, including £4 billion in new finance initiatives via the British Business Bank to improve access to capital. In addition, the government will work with lenders to issue guidance around the misuse of personal guarantees, which are often demanded from small company directors when applying for business loans.
Sir Keir Starmer said the current culture of late payment is holding the economy back. “It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up,” the prime minister said.
He added: “We’re not only tackling the scourge of late payments once and for all, but we’re giving small business owners the backing and stability they need for their businesses to thrive.”
The legislation is expected to be introduced later this year and has already been welcomed across the small business community as a long-overdue intervention to address one of the most persistent challenges faced by the UK’s five million SMEs.
