Large UK companies could face multimillion-pound fines for persistently paying suppliers late under sweeping new legislation designed to protect small businesses and improve cashflow across the economy.
The Department for Business and Trade has confirmed that the Small Business Commissioner will be granted new enforcement powers to investigate poor payment practices and penalise companies that fail to meet required standards.
At the heart of the reforms is a mandatory 60-day payment deadline for all commercial contracts involving businesses with revenues above £54 million. The measure aims to set a clear upper limit on payment terms, which have often stretched far beyond this in practice.
Suppliers will also gain stronger financial protection, with a statutory right to charge interest on late invoices at a rate of 8 per cent above the Bank of England base rate.
Ministers say the changes represent the most significant overhaul of payment laws in a generation.
Business Secretary Peter Kyle said late payments were a major cause of business failure and described the reforms as “simply unacceptable” to delay.
“We are unveiling the strongest, most robust changes to payment laws in over a generation,” he said, adding that the measures would transform the outlook for small firms and reduce time spent chasing overdue invoices.
In addition to financial penalties, companies found to be persistently late payers will be required to publicly explain their behaviour in annual reports, including detailing corrective actions.
The government is also consulting on tighter rules around retention payments in the construction sector, a long-standing issue where funds withheld by large contractors can be lost entirely if a company collapses.
Business groups have broadly welcomed the move, though some argue the reforms do not go far enough.
Federation of Small Businesses policy chair Tina McKenzie said the measures would help end the practice of large firms effectively using smaller suppliers as a source of “free credit”.
However, she noted that a 60-day payment window still falls short of what many consider “prompt payment”, suggesting the ultimate goal should be a 30-day standard.
Emma Jones said the enhanced powers would allow her office to act more effectively, reducing the administrative burden on small businesses.
“Less time chasing debt means more time focusing on growth,” she said.
Late payments have long been identified as a structural problem within the UK economy, particularly for smaller firms with limited cash reserves.
Government data suggests that dozens of businesses close each year directly as a result of delayed payments, with the ripple effects extending across supply chains and local economies.
The new legislation is intended to address this imbalance by shifting both the financial and reputational cost of late payment onto larger companies.
The reforms will be introduced through legislation “as soon as parliamentary time allows”, with ministers also assessing the readiness of businesses to adapt to the new rules.
If implemented effectively, the measures could mark a turning point in how commercial payment practices are enforced in the UK, and provide much-needed stability for small businesses operating in an increasingly challenging economic environment.
