Government announces new late payment measures

The Government has announced new plans to tackle late payments, which it says is part of the most significant legislative reform in 25 years. Late payment is an issue that costs the UK economy £11 billion a year and shuts down 38 businesses every day

Late payments are one of the biggest barriers to small business growth —causing cashflow problems that stop firms from scaling up and investing in their future. Every day, hardworking businesses close their doors because they aren’t paid on time.

The new laws are set to give stronger powers to the Small Business Commissioner to empower them to wield fines, worth potentially millions of pounds, against the biggest firms that persistently choose to pay their suppliers late.

The Small Business Commissioner will be given new powers to carry out spot checks and enforce a 30-day invoice verification period to speed up resolutions to disputes. The upcoming legislation will also introduce maximum payment terms of 60 days, reducing them to 45 days, giving firms certainty they’ll be paid on time.

Audit committees, under the proposals, will also be legally required to scrutinise payment practices at board level, placing greater pressure on large firms to show they’re treating small suppliers fairly, backed by mandatory interest charges for those who pay late.

These changes will also save small businesses valuable time, freeing up hours currently spent chasing overdue invoices so they can focus on growing their business instead.

The announcement on late payment is part of the Government’s plans in launching a new £4 billion wave of financial support aimed at boosting growth and supporting more small businesses to start up and grow. This includes a £1bn boost for new businesses, with 69,000 Start-Up Loans and mentoring support to inspire the next generation of entrepreneurs and small business owners.

The Government is also going further by delivering a new £3 billion boost to the British Business Bank – raising the total guarantee to £5 billion – to help lenders offer more small business loans through the ‘ENABLE programme’. Under the scheme, the BBB provides a government-backed guarantee to help lenders feel safer when lending to smaller or newer businesses, enabling them to offer better loan terms including lower interest.

These measures aim to break down long-standing barriers that have made it harder for small businesses to access the funding they need to get off the ground by making finance and loans more accessible, affordable, and fair.

Accelerating SME growth by just 1 percentage point per year, could deliver £320bn to the UK economy by 2030. All of these measures announced today back small businesses to the hilt and build on action already taken by this government to create the conditions for businesses to thrive:

Prime Minister Keir Starmer said “From builders and electricians to freelance designers and manufacturers—too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses.

“It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.

“Through our Small Business Plan, 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 business to thrive, driving growth across the country through our Plan for Change.”

Business and Trade Secretary Jonathan Reynolds said “This country is home to some of the brightest entrepreneurs and innovative businesses in the world, and we want to unleash their full potential by giving them back time and money to do what they do best – growing our local economies.

“Our Small Business plan – the first in over a decade –  is slashing unnecessary admin costs, making it easier for businesses to set up shop and giving SMEs the financial backing they need.

“This is our Plan for Change in action, putting more money in people’s pockets, boosting local communities and ensuring Britain is a great place to do business and thrive.”

Small Business Minister Gareth Thomas said “I want the UK to be the best place in the world to start a business, grow and succeed – and that’s why we’ve taken bold steps today.

“Too many small firms go under each year because they aren’t paid on time – that is completely unacceptable.

“I hear all too often about businesses who just don’t have the cash needed to start up or grow. Today, we’ve announced measures as part of our Plan for Change to tackle all of those issues and beyond. This is the government listening to businesses, working with them, and delivering real change.”

Policy Chair of the Federation of Small Businesses (FSB), Tina McKenzie, said “Making sure businesses are paid on time, that our high streets thrive, and creating conditions in which everyone can start and succeed in business are crucial priorities for small businesses, communities and the economy. It’s very welcome that the Prime Minister has today made them his Government’s priorities.

“I’m pleased that FSB and the Government have been able to work in lockstep on the bold and ambitious measures needed to tackle the scourge of late payment through legislation, and other pro-growth, pro-small business measures.

“Today’s plan is an encouraging commitment from the Government to take the side of small businesses in the great growth challenge ahead.”

Liz Barclay, IoD Special Advisor for Small Business and Entrepreneurship and former Small Business Commissioner, said “For far too long many bigger customers have regarded delayed payments to suppliers as an inevitable part of doing business. However, payments beyond agreed dates or offering suppliers long payment terms in contracts comes with a huge negative impact. Not only do poor payment practices cost the UK economy £11bn a year, they contribute to the closure of 38 businesses a day, cause worry for suppliers, take up time on chasing payments and leave otherwise viable and efficient businesses less productive than they could be and struggling to manage their cash flow.

“We are therefore delighted to see that the Government is committed to putting an end to late and long payments along with measures to cut administrative costs, modernise the tax and customs system, unlock access to finance, and boost business skills, as well as backing the high streets.

“We understand that the various measures outlined in the plan launched today require consultation responses and subsequent legislative change, and that there won’t be change overnight, but we’re very pleased to see the Government clearly stating its intent. No one can doubt the direction of travel. We need fairer payments, better support and modern systems to make sure all businesses are contributing to a more resilient and sustainable productive economy, capable of delivering the growth we need.

“As the government consults on these upcoming changes, the IoD is committed to working with government to ensure that the interests of businesses of all sizes are taken into account and that there are no resulting unintended consequences.”

Jonathan Andrew, CEO at Bibby Financial Services said “News that the government is taking action to reduce the impact of late payments for small and medium sized businesses is long overdue. So far, attempts to crack down on this issue have failed to have meaningful impact, with our research revealing that 58 percent of SMEs believe the latest measures, such as the Fair Payment Code, don’t go far enough to protect them.

“However, this latest announcement is only the first step. Businesses need to see these plans convert into tangible action. Crucially, late payments are not an isolated issue. Bad debt, caused by non-payment or customer insolvency, is an equally challenging issue eroding profit margins of small businesses.

“With businesses facing wider economic challenges, such as supply chain disruption and stubborn inflation, it’s critical the government follows through and demonstrates its commitment to rebuilding SME confidence.”

Commenting on the Government’s allocation of £4.5bn to the British Business Bank (BBB) to extend and expand key initiatives, including the ENABLE and Growth Guarantee Schemes that channel much needed funding to small businesses, Stephen Haddrill, Director General of the Finance and Leasing Association, said “The availability of funding underpins positive business sentiment. It is great to see the BBB’s key initiatives put on a long term footing to drive optimism and confidence, and most importantly of all, investment decisions that will make individual businesses better equipped this year than last.

“We note also in the Small Business Plan a new Business Growth Service to ensure that owners have access to the right support. Executed well, this service would be transformative.”