Small businesses have hailed a clampdown on late payments as a "historic moment" with new laws set to fine firms that are the worst offenders. Measures to tackle poor practices by companies when it comes to paying their suppliers were welcomed by the industry.
New Powers for the Small Business Commissioner
Legislation outlined in the King's Speech includes granting the Small Business Commissioner new powers to investigate businesses suspected of poor payment practices and adjudicate disputes outside of the courts. This also means the potential to fine businesses that persistently pay their suppliers late or do not comply with the laws. The Small Business Commissioner is an independent public body established by the Government to address late payments and unfair practices.
Key Reforms Under the Late Payments Bill
The reforms will impose a maximum payment term of 60 days, with limited exemptions, enforce mandatory interest for late payments at 8% above the Bank of England's base rate, and introduce a time limit for raising invoice disputes before a payment is due. These measures, which come under the Late Payments Bill, apply to UK-to-UK business transactions and do not affect global supply chains or international trade.
Tina McKenzie, policy chair of the Federation of Small Businesses (FSB), said: "The formal commitment to legislation to stamp out late payments is an historic moment for small firms, who have spent years battling a culture of poor payment practices by big businesses towards their smaller suppliers. FSB worked closely with the Government to help shape these law changes and we're grateful ministers have listened to the voice of small businesses."
Economic Impact of Late Payments
The organisation stated that late payment "destroys thousands of viable small firms each year" and that poor practices have seen large firms using "small suppliers as a free overdraft." The impact of late payments costs the UK economy £11 billion each year and leads to the closure of 38 UK businesses every day, according to research shared by the Government.
Alan Vallance, chief executive of the ICAEW, commented: "Time spent chasing payments is time that is not being used by businesses to win new work and grow, and this legislation will make a real difference to payment culture."
Industry Reactions and Concerns
Rain Newton-Smith, chief executive of the CBI, described the measures to support smaller firms as "positive" but insisted that they be "balanced carefully against the need to protect the competitiveness of larger businesses – particularly those operating across complex supply chains." The Government stressed that its reforms will be deliberately targeted at firms that are the worst offenders for late payments and will not affect the "vast majority" of large companies that pay suppliers on time.
The Small Business Commissioner recovered more than £1.55 million in late payments for small businesses in the 2025-26 financial year.
