Late payments are a long-standing challenge for small and medium enterprises (SMEs) in the UK. According to figures, they contribute to the closure of 38 businesses every day and cost the UK economy £11 billion annually.

In response, the government has launched a consultation which set out a package of proposals aimed at tightening regulation and ensuring faster, fairer payments for small businesses.

Why Do Late Payments Matter

Cash flow is critical for SMEs, many of which operate with limited financial buffers. Delays in receiving payment from larger firms can impact payroll, investment and business survival. As part of its broader strategy to support small businesses, the government is looking to crack down on poor payment practices and shift the culture of delayed payments across UK supply chains.

Key Government Proposals to Tackle Late Payments

The measures proposed in the consultation, if implemented, would amount to the most significant legislative change to tackle late payments in over 25 years. The consultation closes on 23 October 2025 and the government will aim to publish its response and announce next steps within 12 weeks of its conclusion. The proposed measures include:

  1. Introducing tighter deadlines for large companies, requiring invoices to be settled within a maximum of 60 days, reducing to 45 days over time, with substantial fines for repeated late payments.
  2. Introducing a 30-day invoice verification period. Businesses who wish to raise a dispute will need to do so within 30 days of receiving an invoice, otherwise they will be liable to pay the invoice in full within the agreed payments terms, alongside any statutory interest or debt recovery costs if the invoice is paid late.
  3. Mandatory interest on late payments. Statutory interest (currently 8% + Bank of England base rate) would automatically be applied to late payments.
  4. Enhanced powers for the Small Business Commissioner (SBC). The SBC may gain the power to investigate and penalise large firms with poor payment practices. Potential powers include binding decisions, fines and mandatory dispute resolution for those businesses who persistently pay their suppliers late.
  5. Audit committees being legally required to scrutinise payment practices at board level, placing greater pressure on large firms to show they’re treating small suppliers fairly.

The government’s 2025 proposals represent the strongest legislative push in decades to eliminate late payments. If passed and enforced effectively, they could significantly ease the financial pressure on small businesses. The governments hope is that SMEs will benefit from improved cash flow due to prompt payments, freeing up vital resource to focus on growth.

Next Steps

While the outcome of the consultation is approaching, businesses may want to review existing payment practices, processes and contract terms in anticipation of possible legislative changes in the near future.

For advice on the forthcoming changes or any other company law matters, please contact our Corporate and Commercial department on 0116 289 7000 or info@bhwsolicitors.com.


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