PAY UP OR PAY THE PRICE: Late payment crackdown targets Britain’s worst corporate offenders

Britain’s biggest companies are facing a major crackdown on late payments after ministers unveiled the toughest small business protection laws in a generation. Under the new Bill, large firms could be fined millions for failing to pay small suppliers within 60 days, while mandatory interest charges and new powers for the Small Business Commissioner aim to stop what campaigners call an £11 billion cashflow scandal destroying dozens of small firms every day.

The starter gun is being fired today on the biggest Late Payment crackdown in 25 years. The Small Business Protections (Late Payment) Bill is being introduced in the House of Lords today to help save the UK’s small businesses

The Bill aims to protect millions of sole traders, freelancers and family‑run firms from being kept waiting by big‑business that hold onto payments or impose long payment terms in their contracts.

late payment

The new Bill promises to end, finally, the scandal of small firms waiting months to be paid for work they’ve already done.

THE NEW RULES

Under the new law:

There will be 60‑DAY MAX PAYMENT TERMS

Large companies will be legally forced to pay small suppliers within 60 days to avoid endless delays. There are certain exemptions listed in the draft Bill.

Mandatory interest on late payments

If they pay late, firms will pay 8% above the Bank of England base rate. This will end the practice of adding a clause in contracts reducing the interest rate payable.

Retentions banned in construction

The practice of withholding cash from small builders and trades will be banned.

Small Business Commissioner gets new powers

The Commissioner will be able to:

• Investigate bad payers

• Adjudicate disputes

• Fine repeat offenders, with penalties worth tens of millions

This is the first time the UK has had a proper enforcement regime rather than just “guidance” that big firms ignore.

LATE PAYMENTS ARE KILLING SMALL FIRMS — LITERALLY

Every day, 38 small businesses shut their doors, at least in part because they weren’t paid on time. For small and micro businesses, late payment isn’t an inconvenience, it’s the difference between paying employees and supplier, keeping the lights on and going under.

Owners spend hours chasing invoices instead of running their business. Some skip their own wages just to keep others paid. The Bill being introduced today aims to stop that.

The Prime Minister and Business Secretary are calling this a “historic moment”. The Prime Minister says: “Too many small business owners are spending hours chasing money they are owed. Today we’re changing that.” The Business Secretary Peter Kyle says: “Late payments choke growth and cost jobs. That ends today.”

THE COST OF LATE PAYMENTS: £11 BILLION A YEAR

Late payments drain £11bn from the UK economy annually. That’s money that should be:

• hiring staff

• upgrading equipment

• expanding premises

• boosting local high streets

Instead, it’s stuck in the bank accounts of giant firms which pay when they feel like it or twhen their systems allow.

SMALL BUSINESS COMMISSIONER: NEW POWERS, REAL TEETH

Once the Bill is passed and comes into force the office will be able to:

• name and shame

• investigate

• fine

• force improvements

Boards of big companies will have to explain why they’re paying late.

CONSTRUCTION FIRMS GET A BIG WIN

Small builders, electricians, plumbers and trades have been hammered for years by “retentions” when big firms hold back cash for months or years.

The Bill bans this practice outright. This is one of the biggest wins for small construction firms in decades.

THE BOTTOM LINE

This is the toughest late‑payment crackdown in the G7, and it’s aimed squarely at protecting the UK’s 5.5 million small and micro businesses.

However, introducing the Bill in Parliament today does not mean the changes kick in today. There’s a long way to go yet before the measures come into force and some may be changed along the way as the measures are debated.

The Bill is introduced in the House of Lords on 19 May 2026. From here, the typical timeline for a major government‑backed Bill looks like this:

House of Lords stages

• First Reading: today

• Second Reading: usually 1–3 weeks later

• Committee Stage: 2–6 weeks

• Report Stage: 1–3 weeks

• Third Reading: 1–2 weeks

House of Commons stages

Once it leaves the Lords, the Commons repeats the same process. This usually takes 8–12 weeks, depending on political priorities and parliamentary congestion.

Final steps

• Consideration of amendments (ping‑pong): 1–3 weeks

• Royal Assent: usually within days

Realistic total timeframe

3–6 months from introduction on 19th May 2026 to Royal Assent, meaning the Bill could become law between August and November 2026.

When would the new rules apply?

Even after Royal Assent, the government will need to:

• publish regulations

• set commencement dates

• give businesses time to adjust systems

The full regime (60‑day cap, mandatory interest, new SBC powers) is likely to go live in phases, with the main provisions probably starting in early 2027.

As the Bill progresses it is also possible that there are amendments to some of the measures drafted. There may also be unintended consequences for small & micro businesses. Even well‑designed reforms can create side‑effects.

Big firms may tighten supplier lists

To avoid fines, large companies may:

• reduce the number of small suppliers they work with

• shift to bigger firms that can absorb compliance demands

• outsource through intermediaries

Small firms could lose contracts or face higher barriers to entry. It is also possible that firms that have been paying suppliers in 30 days or even quicker may now shift to paying in 60 days because there’s little incentive to pay quicker.

Longer onboarding and more paperwork

Large companies may respond by:

• adding more checks before approving a supplier

• extending procurement processes

• demanding more documentation

Small firms may wait longer to start work, even if they get paid faster once they do.

Big firms may push risk down the chain

Some corporates may try to “compensate” for mandatory interest and fines by:

• lowering contract values

• increasing fees elsewhere

• tightening terms on micro‑suppliers

Small firms may get paid on time but earn less.

Construction sector turbulence

Banning retentions is a huge win but it may cause:

• higher upfront pricing

• more use of bonds or insurance

• stricter qualification requirements

Micro‑contractors may face new financial hurdles.

Increased disputes

Mandatory interest and strict deadlines may lead to:

• more arguments about whether work was “completed”

• more invoice queries

• more formal disputes

Small firms may need better record‑keeping and admin capacity.

Cash‑flow pressure on mid‑sized firms

Medium‑sized businesses (caught between big customers and small suppliers) may struggle to:

• pay small suppliers within 60 days

• while still waiting 90+ days for their own invoices

The squeeze moves up the chain, not away from it.

Enforcement bottlenecks

The Small Business Commissioner will have more powers and cases so unless the office is properly funded, delays could undermine confidence.

The Bill is hugely significant and overwhelmingly positive for small and micro businesses. But like all major reforms it will reshape behaviour across supply chains.

The biggest risk is that big firms comply with the letter of the law while finding new ways to protect themselves at the expense of smaller suppliers.

The biggest opportunity is a cultural shift. We need “paying small firms on time’ to become the norm, not the exception.