The UK government is preparing to introduce what it calls the “toughest laws on late payments” among G7 countries, aiming to protect small and medium-sized enterprises (SMEs) from chronic delays in payments by large corporate clients.
Under the proposed reforms, large firms will be legally required to pay their small suppliers within a maximum of 60 days—a timeframe that will later be reduced to 45 days. Companies that fail to meet deadlines will face mandatory interest charges on overdue payments, while audit committees will be held accountable for payment practices at the board level.
The crackdown comes after years of criticism that previous voluntary frameworks and regulatory efforts, such as the appointment of a small business commissioner and the ‘duty to report’ payment terms, have failed to reduce the widespread issue. Some large companies have routinely taken more than 120 days to settle invoices, causing financial distress among smaller businesses.
“This is 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 side of small businesses.”
Government estimates suggest that poor payment practices cost the UK economy approximately £11 billion a year, stifling cashflow and undermining productivity across the SME sector. For small business owners, delays in payment are more than an inconvenience—they often pose existential threats, adding to administrative burdens and stress.
Under the new measures, the powers of the small business commissioner will also be strengthened. The office will be given authority to levy fines against serial late payers and take swifter enforcement action in disputes. Companies that repeatedly flout payment rules could face multi-million-pound penalties.
The legislative reforms are part of a wider SME support package, which includes £4 billion in financing initiatives via the British Business Bank to improve access to capital. Additionally, the government plans to work with lenders to crack down on the misuse of personal guarantees, which are frequently demanded from small company directors when applying for loans.
Prime Minister Sir Keir Starmer said the new rules mark a cultural shift in how businesses engage with their suppliers. “It’s unfair, it’s exhausting, and it’s holding Britain back,” he said. “We’re not only tackling the scourge of late payments once and for all, but we’re giving small business owners the backing and stability they need for their businesses to thrive.”
The legislation is expected to be tabled later this year and has already drawn widespread support from the UK’s five million-strong SME community, which has long called for tougher enforcement on payment delays.
