Legal, healthcare, and IT sectors set to benefit from new late payment legislation

Small businesses in sectors including legal, healthcare, and IT could be among the biggest winners from the government’s new crackdown on late payments, according to new research from Hiscox.

The Small Business Protections Bill, introduced to Parliament last week and now progressing through the House of Lords, will introduce sweeping new rules aimed at tackling late payments between large firms and their smaller suppliers. The government says the reforms will deliver the toughest late payment regime in the G7, with measures designed to improve cash flow and reduce the financial pressure facing millions of small businesses across the UK.

The impact of late payments is not evenly spread across the economy, according to the research, with some sectors carrying significantly higher unpaid invoice burdens than others.

The data showed that Legal businesses are owed an average of £15,641.79 in late payments annually, this was followed by Healthcare businesses £15,467.89, IT & Telecoms £14,671.76, Finance £14,590.63 and then Manufacturing & Utilities £13,240.30.

The data found that the average small business owes £12,357.58 in late payments annually, with almost a quarter (23%) of all payments arriving late.

Businesses spend the equivalent of 331 cumulative days annually waiting for overdue invoices. Whilst small businesses chase an average of 14 late payments each year

Under the proposals, large companies would face stricter rules when paying smaller suppliers, including a legal maximum 60-day payment term, mandatory interest on overdue invoices, set at 8% above the Bank of England base rate and stronger enforcement powers for the Small Business Commissioner.

There will also be financial penalties for persistent late payers and a ban on withholding retention payments in construction contracts. Ministers say the changes are intended to tackle a problem that costs the UK economy a significant amount and contributes to business closures.

The findings suggest sectors such as legal, healthcare, IT and finance (where average unpaid invoices are highest) could see the most immediate benefit if enforcement and payment timelines are tightened.

IT & Telecoms firms also reported the highest number of late payments on average (18 per year), followed by finance (17) and healthcare businesses (16). Retail, catering and leisure businesses report an average of 15 late payments per year, while legal businesses report an average of 14.

Nick Thornhill, Direct and Partnerships Director at Hiscox, said “As a small business insurer, we know that cash flow is the lifeblood of any business. Yet late payments remain one of the biggest challenges for entrepreneurs and small businesses. Knock-on effects of late payments can disrupt cash flow, impact payroll, delay investment, and seriously compromise a business.”