Late Payment Legislation Laid Before Parliament
Late payments remain one of the biggest frustrations for small businesses across the UK, often creating unnecessary cash flow pressure even when businesses are profitable on paper.
Now, following its inclusion in the King’s Speech, the government’s Small Business Protections Bill has officially been introduced to Parliament.
The proposed legislation aims to strengthen protections for smaller suppliers and improve payment practices across the UK economy.
Why Late Payments Matter
For many businesses, delayed customer payments can create significant challenges.
While suppliers, wages, VAT and tax bills still need to be paid on time, overdue invoices can leave businesses struggling to manage day-to-day cash flow.
Late payments are often cited as one of the biggest barriers to growth for SMEs, particularly where large organisations take extended periods to settle invoices.
The new Bill seeks to address some of these long-standing issues.
A 60-Day Payment Cap
One of the headline proposals is the introduction of a maximum 60-day payment term for large businesses paying small suppliers.
If introduced, larger organisations would no longer be able to impose significantly longer payment terms, helping smaller businesses receive money more quickly and predictably.
This could provide valuable support for working capital and cash flow management.
Mandatory Interest on Late Payments
The Bill also proposes making interest on overdue invoices compulsory.
Late payments would automatically attract interest at:
8% above the Bank of England base rate.
The intention is to encourage prompt payment and discourage businesses from routinely delaying settlement of supplier invoices.
Changes for the Construction Industry
The legislation also addresses retention payments within construction contracts.
Under the proposals, withholding retention payments would be prohibited, helping subcontractors and suppliers receive funds more promptly after completing work.
This could provide additional certainty for businesses operating within the construction sector.
Greater Powers for the Small Business Commissioner
The Bill would significantly strengthen the role of the Small Business Commissioner.
New powers would allow the Commissioner to:
- Investigate businesses with poor payment practices.
- Help resolve payment disputes.
- Fine organisations that persistently pay suppliers late.
The aim is to provide smaller businesses with stronger support without necessarily needing costly legal action.
Increased Transparency for Large Businesses
Large companies could also face greater scrutiny under the new rules.
Boards and audit committees would be required to publish explanations where payment performance falls below expected standards, including details of the steps being taken to improve.
This additional transparency may encourage businesses to strengthen their payment practices and supplier relationships.
What Happens Next?
The Bill must now progress through the normal Parliamentary process before becoming law.
Many small businesses will be following developments closely, particularly those that regularly experience long payment delays from larger customers.
While implementation dates have not yet been confirmed, the proposed changes could represent one of the most significant reforms to commercial payment practices in recent years.
Final Thoughts
Strong cash flow is essential for business stability and growth, and tackling late payments remains a key issue for many SMEs.
If passed, the Small Business Protections Bill could provide valuable additional safeguards by improving payment terms, introducing mandatory interest and strengthening enforcement.
If late payments are affecting your business, reviewing your credit control procedures and cash flow forecasting can also help improve financial resilience.
If you’d like advice on managing cash flow or strengthening your credit control processes, we would be happy to help.
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📧 info@ojwassociates.co.uk
