The UK government is preparing to introduce comprehensive legislation to cut late payments, describing it as the “hardest late payment law” in the G7 countries.
The proposed rules will include payments to small companies for a maximum 60-day payment period for small suppliers, ultimately reducing to 45 days, and compulsory interest charges for delays in payment.
The long-awaited reforms are part of a broader strategy to support small and medium-sized enterprises (small and medium-sized enterprises), many of which are continuing to differ in payments with larger corporate clients. Under the new rules, the audit committee will legally require overseeing payment methods at the board level, and repeated offenders could face millions of pounds fines.
The move comes after years of criticism after governments deal with payment fairness and the limited impact of past plans, such as the introduction of small business specialists and the “responsibility” to “report” payment performance. Previous voluntary frameworks failed to significantly reduce the widespread problem of delayed payments, and some companies spent more than 120 days to resolve invoices.
“It’s bold and ambitious,” said Tina McKenzie, policy chair of the Federation of Small Businesses (FSB). “It’s an encouraging commitment from the government to take the small business side.”
The government estimates that poorer payment methods lose the UK economy each year, costing £11 billion a year, thus killing cash flows and hindering productivity across SMEs. Many small business owners have long believed that delaying payments will not only harm their financial situation, but also create pressure, uncertainty and administrative burden.
Under the new recommendation, if large companies miss payment deadlines, interest will be automatically charged, while small business specialists will be expanded to include the ability to impose fines against continuous payers. The Commissioner will also gain law enforcement powers to pursue recurring offenders faster and raise controversy.
These reforms are part of broader support for the SME sector, including a new £4 billion financial plan through British Commercial Banks to improve access to capital. Additionally, the government will work with lenders to involve the abuse of personal guarantees, which are usually required by small company directors when applying for commercial loans.
Sir Kyle Starmer said the current delayed payment culture has set the economy back. “It’s unfair, exhausting, and backed the UK. So our message is clear: It’s time to pay,” the Prime Minister said.
He added: “We not only address the scourge of once and for all post-payments, but also provide small business owners with the support and stability their businesses need to thrive.”
The legislation is expected to be introduced later this year and has been welcomed throughout the small business community as a long-term expired intervention to address one of the most ongoing challenges facing the UK’s five million SMEs.
