UK Government Unveils Toughest Late Payment Crackdown in Over 25 Years

The UK government has announced a major overhaul of late payment rules, introducing what it describes as the toughest anti-late payment laws in the G7. The reforms are designed to protect small businesses, freelancers and self-employed workers who are often left waiting months to be paid by larger companies.

Late payments remain one of the biggest challenges facing small firms across the UK. According to government figures, late invoices cost the economy around £11 billion every year and contribute to the closure of 38 businesses each day. Business owners affected by delayed payments also spend an average of 86 hours per year chasing money they are already owed.

Under the new plans, the Small Business Commissioner will gain stronger enforcement powers, including the ability to investigate poor payment practices, resolve disputes and issue major fines to persistent offenders. Some businesses could face penalties worth millions of pounds if they repeatedly fail to pay suppliers on time.

The reforms will also introduce a hard cap of 60 days on payment terms for larger businesses, with limited exemptions. Companies using longer payment periods will need to review their contracts and processes ahead of the changes. There will also be a legal requirement for audit committees and company boards to explain poor payment performance and show what action is being taken to improve it.

Another key measure is the introduction of mandatory statutory interest on overdue payments. Businesses that pay invoices late may have to pay interest at 8% above the Bank of England base rate, increasing the financial consequences of delaying payment. The government also plans to strengthen protections around retention payments in the construction sector.

The announcement marks a shift away from relying on voluntary payment codes and towards a more formal system of enforcement. While schemes such as the Fair Payment Code have encouraged better behaviour among some firms, the government believes stronger legal action is needed to deal with businesses that continue to ignore suppliers and delay payments.

For small businesses, the proposed rules could improve cash flow, reduce time spent chasing invoices and provide more confidence when working with larger customers. The government says the changes are intended to create a fairer business environment and help smaller firms focus on growth rather than unpaid bills.