Big UK companies that are repeatedly late paying their suppliers will face billions in fines under sweeping new legislation aimed at tackling late payment practices and protecting small businesses.
The changes, announced by the Department of Business and Trade, will give the Small Business Commissioner more enforcement powers, so he can investigate bad payment behavior and punish persistent offenders.
At the heart of the new rules is a mandatory 60-day payment window for all commercial contracts involving companies with an annual turnover of more than £54 million.
Suppliers will also have the right to charge statutory interest on overdue invoices at a rate of 8 per cent above the Bank of England base rate, significantly increasing late payment costs for large firms.
Companies found to be in persistent breach of payment standards will be required to publicly disclose their practices in annual reports, including explanations and steps taken to improve.
Business Secretary Peter Kyle said the measures represented the most significant change to payments rules in a generation.
“It is unacceptable that so many businesses are forced to close because of late payments,” he said. “These are the strongest, most radical changes to payment rules in more than a generation.”
The government has also confirmed that it will discuss changes to the payment of maintenance fees in the construction sector, a long-standing issue where funds are withheld and sometimes lost if the contractor fails to pay them.
Industry bodies have widely welcomed the changes, describing them as a long-overdue intervention in a crisis that has plagued SMEs for decades.
Federation of Small Businesses policy chair Tina McKenzie said the measures would help prevent large companies from using small suppliers as a source of “free credit”.
However, he cautioned that the 60-day payment window still falls short of optimal performance, saying the 30-day standard should remain the long-term goal.
Late payments are widely viewed as one of the biggest obstacles to SME growth, affecting cash flow, investment and hiring decisions. Government research suggests that dozens of businesses close each year due to late payments.
Emma Jones, the Small Business Commissioner, said the new powers would help reduce the administrative burden on small firms.
“Less time chasing credit means more time focused on growth,” he said, adding that stronger consolidation would help change behavior across the market.
This law is expected to be introduced if the time of the Parliament allows, the ministers stated that they will check whether the businesses are ready before approving the change of contracts.
The changes mark a clear shift towards a more interventionist approach to payment systems, as policymakers seek to rebalance the relationship between large companies and their small suppliers.
For large businesses, the message is becoming increasingly clear: late payments are no longer just a commercial issue, they are a regulatory and reputational risk.
