Late Payments: What the Government's Crackdown Means for Your Business
Late payment has been a persistent problem for UK small businesses for years. The government now says it costs the economy £11 billion annually, and it has announced what it describes as the strongest reforms to payment laws in over a generation.
Here's what's being proposed, what it means in practice, and just as importantly what you should be doing now regardless of when the new rules come into force.
What's changing?
The Department for Business and Trade is proposing new legislation that will significantly strengthen enforcement around late payments. The key measures are:
The Small Business Commissioner gets real teeth. The Commissioner will gain new powers to investigate poor payment practices, adjudicate disputes, and impose fines — potentially worth tens of millions of pounds for firms that persistently pay late or refuse to comply.
A 60-day cap on payment terms. Large businesses will be required to pay smaller suppliers within 60 days. Contractual terms that exceed this will no longer be enforceable.
Mandatory statutory interest. All commercial contracts will need to include statutory interest on late payments, set at 8% above the Bank of England base rate. Clauses that attempt to opt out of this will be invalid.
Public disclosure. Repeat offenders will be required to publicly report their payment practices, creating reputational as well as financial consequences.
These proposals still need to pass into law, so there will be at least a year before they take effect. But the direction of travel is clear.
Why this matters beyond the headlines
Late payment tends to be framed as a problem between large corporates and their small suppliers, and the legislation is aimed squarely at that dynamic. But in practice, the effects ripple much further.
When a business isn't paid on time, its own cash flow tightens. It may delay paying its own suppliers, lean more heavily on overdrafts or short-term borrowing, and lose the ability to plan with confidence. One late payment in a supply chain can trigger a domino effect — and it's often the smallest businesses at the end of the chain that feel it most acutely.
Late payments rarely exist in isolation, either. They tend to sit alongside other pressures: thinning margins, rising debtor days, increased borrowing, and suppliers starting to tighten their own credit terms. Over time, that combination can push an otherwise viable business into genuine distress.
Early warning signs to watch for
Whether or not you're directly affected by the new legislation, it's worth keeping an eye on some common indicators that late payment pressure is building:
Debtor days creeping upward or receivables ageing beyond normal terms
Cash flow feeling tight despite the business being profitable on paper
Increasing reliance on overdrafts or short-term finance to bridge gaps
Your own supplier payments slipping as a consequence
Key customers pushing for longer payment terms or routinely paying late
These are often early-stage symptoms. Caught early, they're manageable. Left unaddressed, they can escalate quickly.
Practical steps you can take now
You don't need to wait for the legislation to act. There are straightforward things you can do today to protect your cash position:
Tighten your credit control. Make sure invoices go out promptly, payment terms are clearly stated, and overdue debts are chased consistently. It sounds basic, but many businesses let this slip when they're busy.
Monitor your debtor book actively. Review your aged debtors regularly and challenge slow payers early — before a pattern becomes entrenched.
Enforce your terms. If your contracts include payment terms, hold customers to them. You already have the right to charge statutory interest on late commercial payments under the Late Payment of Commercial Debts (Interest) Act 1998, even before the new reforms come in.
Diversify your customer base. If a large proportion of your revenue depends on one or two customers, a payment delay from either of them can be devastating. Spreading that exposure reduces the risk.
Forecast and stress-test your cash flow. Model what happens if your biggest customer pays 30 days late, or if two or three invoices slip at the same time. Understanding your pressure points in advance gives you time to respond.
How we can help
Cash flow management is something we work on with clients regularly — whether that's building forecasts, reviewing credit control processes, or simply keeping an eye on the numbers so problems are spotted early. If late payments are causing you concern, or if you'd like to review how well-protected your business is ahead of these changes, get in touch and we'll be happy to talk it through.