Late payment has been one of those problems small firms are told to manage around rather than expect government to fix. That may be starting to change. On 24 March, the government announced what it says is the biggest shake-up of late-payment rules in more than 25 years, with tougher powers for the Small Business Commissioner, a new 60-day cap on payment terms for large firms paying smaller suppliers, and mandatory interest on late invoices.
For many SMEs, that will sound overdue rather than dramatic. Builders, wholesalers, agencies, freelancers, food suppliers and local service businesses have spent years acting as unwilling lenders to bigger customers. If you want the wider background on why overdue invoices keep hurting smaller firms, our earlier look at late payments squeezing UK SMEs still holds up. What changes now is that ministers are signalling a much harder enforcement regime.
What is actually being proposed
The headline change is the Small Business Commissioner’s role. According to both the government and the Commissioner’s office, the job will no longer be limited mainly to nudging and naming poor behaviour. The office is set to gain powers to investigate suspected bad payment practices, adjudicate disputes outside the court process, and issue significant financial penalties to persistent late payers. For some large firms, those fines could run into the millions.
The government also says large businesses will face a maximum 60-day payment term when paying smaller suppliers, with only limited exemptions. On top of that, all commercial contracts would need to include statutory late-payment interest at 8% above the Bank of England base rate. In simple terms, paying late would stop being a mostly consequence-free cashflow trick.
A separate part of the package matters particularly for trades and subcontractors. Ministers say they also propose to ban the deduction of retentions in construction contracts, subject to consultation on how that would work. That will be worth watching closely for smaller firms that regularly complete work but wait far too long for the final slice of money to come through.
Why this matters to small businesses
The practical issue is cashflow, not just principle. The government says late payments cost the UK economy £11 billion a year, while research cited by the Small Business Commissioner says 38 businesses close every day because they are not paid on time. Whether your business has five staff or fifty, a couple of slow-paying customers can distort payroll planning, stock buying, VAT timing and owner pay.
That is why this announcement could matter beyond the legal fine print. If bigger customers know the Commissioner can intervene properly, levy penalties and push disputes out of the slow and expensive court route, some may start treating supplier payment as a board-level risk rather than a back-office habit.
It also gives smaller suppliers a clearer benchmark. A 60-day cap is not the same as prompt payment, and many business groups would prefer 30 days to become the true norm. Even so, a hard outer limit is easier to plan around than vague terms, rolling excuses or contracts that make a small supplier accept long waits as the price of winning work.
What SMEs should do now
First, review your current customer book. If a large client regularly pays on 75, 90 or 120-day cycles, this is the moment to note it and gather evidence. Keep contracts, invoice dates, agreed payment terms and actual payment dates tidy. If the rules tighten as planned, good records will matter.
Second, check your contracts and invoicing process. Mandatory interest sounds helpful, but it is easiest to use when your paperwork is clean, your due dates are clear and disputes about what was supplied are limited. Firms that still rely on vague email trails or inconsistent invoice wording should tighten that up now.
Third, construction and engineering businesses should pay special attention to the retention piece. The proposal is not law yet, but it is a clear sign that government sees withheld retentions as part of the same unfair-payment culture. Smaller contractors who have been stung before may want to follow the consultation closely.
The practical takeaway
This is not instant relief. These measures still need to be implemented, and some details will matter a lot in practice. But the direction of travel is clear: government wants late payment to become harder to normalise, harder to hide and more expensive to keep doing.
For SMEs, that makes this more than a Westminster headline. It is a sign that chasing old invoices may gradually become less lonely, especially if enforcement powers and automatic interest really bite. The smart move now is to get your records in order, identify the worst offenders in your customer base, and be ready to use stronger rules if and when they arrive.
Sources
- GOV.UK, Time to Pay Up: Government unveils toughest crackdown on late payments in over 25 years, published 24 March 2026
- Small Business Commissioner, New Powers for the Small Business Commissioner as Part of Government Package to Tackle Late Payments, published 24 March 2026
- Department for Business and Trade, Minister Blair McDougall letter to businesses on upcoming late payment reforms, dated 24 March 2026
