Late payments are costing the UK economy £11 billion a year and forcing 38 businesses to close their doors every single day. Following consultation, the UK government has announced that it will introduce legislation to tackle this issue. These changes will affect how you contract and how you pay or get paid. Here's what you need to know.
Beefed-up Small Business Commissioner powers
The Small Business Commissioner (SBC) is getting a serious upgrade. Under the new rules, the SBC will have powers to investigate businesses suspected of poor payment practices or dodgy reporting, resolve payment disputes without court proceedings, and, crucially, impose fines. Large companies that persistently pay late or flout the rules could face significant penalties.
The wider payment shake-up
A hard cap of 60 days on payment terms is coming, with only strictly limited exemptions. If your standard terms currently stretch beyond this, you'll need to revisit them.
Large companies with poor payment track records will face new transparency requirements. Boards or audit committees will need to publicly explain why they're paying late and what they're doing about it. Reputational exposure is now very much part of the enforcement toolkit.
There will also be a statutory deadline for raising invoice disputes. Miss it, and you'll owe your supplier compensation. This is a significant shift and business customers will need robust processes to flag disputes quickly.
Finally, all commercial contracts will be required to include a right to statutory interest at 8% above the Bank of England base rate. Even if your contract is silent on late payment interest, it will apply automatically.
Construction sector: Retention payments in the firing line
The government plans to ban the deduction and withholding of retention payments under construction contracts. A consultation is expected, so watch this space, but if you operate in the construction sector, this could fundamentally change how you manage cash flow and risk.
Geographic scope: Will these rules apply UK-wide?
The government's ambition is UK-wide application, but there's a complication: late payments are a devolved matter in Scotland, Wales and Northern Ireland. Expect ongoing discussions with the devolved governments to achieve alignment. For now, assume these rules are coming, but keep an eye on regional variations.
What happens next?
These changes will require both primary and secondary legislation, so implementation won't happen overnight. The government will legislate when Parliamentary time allows and will issue guidance in due course.
But don't wait for the ink to dry. Now is the time to audit your payment practices, tighten up your invoice dispute processes, and review the payment terms in your contracts. Whether you're a supplier looking forward to stronger protections or a customer preparing for tighter obligations, getting ahead of these changes will put you in a much stronger position.
