UK Government Cracks Down on Late Payments — What Small Businesses Need to Know

Late payment is the number one cash-flow killer for small businesses in the UK. According to the Federation of Small Businesses, over 50,000 businesses close every year because of late payments, and the total amount owed to small firms at any given time exceeds £20 billion. The government has announced a significant package of reforms to tackle this — though the changes are not expected before 2027.

The 60-Day Payment Cap

Under the proposed reforms, large businesses will be required to pay small business suppliers within 60 days. While the Late Payment of Commercial Debts (Interest) Act 1998 already sets a default 30-day payment period, in practice many large companies impose 90- or 120-day payment terms on smaller suppliers. The new cap will make payment terms exceeding 60 days unenforceable in contracts between large businesses and small suppliers.

Mandatory Interest on Late Payments

The existing right to charge statutory interest (8% above the Bank of England base rate) will be strengthened. Under the reforms, interest will accrue automatically on any invoice not paid by the contractual due date — small businesses will not need to "opt in" or send a separate demand. The government also plans to simplify the process for claiming the fixed compensation amounts (£40, £70, or £100 depending on the debt size) that already exist under the Late Payment Act.

Small Business Commissioner Gets Fining Powers

The Small Business Commissioner (SBC), currently a largely advisory body, will gain powers to investigate and fine large businesses that systematically pay small suppliers late. The SBC will be able to accept complaints, conduct investigations, and impose financial penalties on businesses that breach payment rules. This is a significant upgrade from the current position, where the SBC can name and shame but cannot compel payment or levy fines.

When Will This Happen?

The government has indicated that these reforms are not expected before 2027. Legislation will need to pass through Parliament, and there will be a consultation period on the detailed rules. Small businesses should not expect immediate relief, but should prepare for a significantly stronger enforcement framework in the near future.

What You Can Do Now

In the meantime, small businesses should use the rights they already have. The Late Payment Act already entitles you to 8% statutory interest and fixed compensation. Include your payment terms clearly on every invoice. Send Letters Before Action promptly when invoices are overdue. And use Money Claims Online to pursue debts through the courts if necessary — the small claims track (under £10,000) is designed for businesses representing themselves. When the new reforms arrive, businesses that already have good invoicing practices and enforcement habits will be in the strongest position.