Have your say: Government consults on biggest late payment reforms in 25 years

The government has launched a major consultation on late payment, setting out what it calls the most significant legislative package in over a quarter of a century.

At Enterprise Nation, we know late payment is one of the biggest barriers that small businesses face. It drains cash flow, stunts growth and forces firms to spend time chasing debts rather than growing their business.

Late payments burden almost half of our members, while the UK economy loses nearly £11 billion a year and 38 businesses close every day as a direct result of not receiving payment on time.

This consultation is a real opportunity to reset the culture of payment in the UK. Enterprise Nation will be responding and we want to make sure small businesses' voices are heard.

We're inviting all our members to share their experiences so we can represent them directly to government.

The process for formally challenging a late payment

If you've tried but failed to resolve an outstanding debt yourself, you can contact the Small Business Commissioner (SBC) for information and support.

They may be able to investigate the dispute and make recommendations to resolve the matter. If they can't investigate your dispute, they pledge to do as much as they can to help you resolve the situation.

You can't claim interest or compensation for an invoice that a debtor has disputed legitimately. You can apply late payment charges if the other party has accepted an invoice but hasn't paid within the agreed payment times.

The payments term begins when the party receives and accepts the invoice. If you think the dispute is unreasonable, or that it's taken an unreasonable amount of time to resolve it, the SBC may be able to investigate your complaint and make recommendations to resolve the dispute.

In the period between April 2023 and March 2024, the SBC dealt with 618 enquiries and signposted 461 to a service providing extra support. Ninety-four per cent of complaints were resolved within the OSBC's Service Level Agreement of 40 working days. As a result of the SBC's intervention, small businesses were paid £390,000 during this period.

The small business owner's view

Becky Stevenson, Enterprise Nation member and business consultant:

"I've noticed a wide trend in late payments and have been impacted myself. One missed payment affects the whole supply chain. It shouldn't, but it does.

"As a business owner, not getting paid can make or break you. It's your mortgage or rent payment, food on the table or worrying about Christmas or special planned times like holidays. You need and rely on getting paid and having a sustained cash flow.

"Over the last year, I've been owed thousands of pounds (some of which is still outstanding), which has affected my business, family life and mental health.

"During this time, I've still paid my contractors and have struggled not to have an impact on them. It's been hard."

Robert Bolohan, Enterprise Nation member and co-founder of Lotuly:

"I've had to implement strict policies such as getting paid upfront only, not only for our cash flow but also to be able to pay our contractors in the same way. Some in our industry take 90 days to pay and this is unacceptable for a small business owner or freelancer.

"A positive impact for our business would be to get more businesses to see the advantage that getting paid upfront can generate for other small and micro businesses, as it's not only boosting our mood but also making everything easier and less stressful. In short, the more people can adopt this way of doing business, the better.

"Even 50% upfront and 50% on delivery sounds more appealing than 90 days waiting time for an invoice to get paid. Implementing a specific law that prohibits late payments (specifically for big companies with at least 50 to 100 employees) and is also punishable would be the perfect thing to put in place."

Natalie Bamford, Enterprise Nation member and CEO of Colleague Box:

"The biggest impact for us as a small business is big businesses taking so long to pay invoices which then negatively impacts our cash flow and slows our payment to other small businesses.

"It's frustrating that the larger businesses could afford to pay quicker but demand 45-day to 60-day payment terms. We'd love to pay our suppliers within seven days, but the larger orders from our larger clients take up so much cash flow it becomes a domino effect throughout the chain.

"There's definitely been an increase in late payments, even in the last few months. And I can only imagine it's going to get worse as businesses are looking to hold on to their cash for as long as possible during this time of such uncertainty and rising costs."

What the government is proposing

The consultation, which runs until 23 October 2025, sets out eight legislative measures.

1. Audit committees and board-level scrutiny

Large companies would need to make sure their boards or audit committees provide commentary and recommendations on payment practices before submitting data to government.

The Small Business Commissioner (SBC) would also write to boards or committees when conducting payment reporting assurance or investigating a company's practices.

2. Maximum payment terms

The exemption in the Late Payment of Commercial Debts (Interest) Act 1998 that allows payment terms longer than 60 days if "not grossly unfair" would be removed. This introduces a clear 60-day maximum.

The government is also consulting on reducing this to 45 days after five years, though this will be reviewed further.

3. A deadline for disputing invoices

Businesses would have 30 days to raise an invoice dispute. After that period, invoices must be paid in full within the agreed terms. If paid late, statutory interest and debt recovery costs would apply.

4. Mandatory statutory interest

The ability for businesses to vary or avoid statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 would be repealed. All late payments would automatically attract interest at the statutory rate of 8% above the Bank of England base rate, with no exceptions.

5. Additional reporting on statutory interest

Large companies already reporting under the Payment Practices and Performance Regulations would also have to disclose statutory interest owed and paid in each reporting period. This aims to make poor behaviour around payment more transparent.

6. Financial penalties for persistent late-payers

The SBC would gain powers to issue financial penalties against large businesses that consistently pay late.

A "trigger point" (for example, if 25% of payments are late) would prompt investigation. Penalties would be linked to unpaid statutory interest liabilities and could be set at up to twice the amount owed.

7. Additional powers for the SBC

The SBC's remit would expand to allow:

• proactive investigations into unfair practices

• powers to compel businesses to disclose information

• binding arbitration with enforceable awards

• financial penalties for failing to comply with the rules

• spot checks on the accuracy of reported payment data

These new powers would be modelled on lessons from the Groceries Code Adjudicator and Pubs Code Adjudicator.

8. Retention clauses in construction contracts

Retention clauses are common in construction contracts, where a proportion of payment is withheld until work is complete and defects are resolved.

While they're designed as security for the client, in practice they tie up cash for months or years, which can put smaller contractors under a lot of pressure. If the payer becomes insolvent during that period, the money is generally lost altogether.

Two options are being consulted on:

1. Banning retention clauses outright

2. New protections such as segregated bank accounts or instruments of guarantee (insurance/surety bonds) to shield retained funds from insolvency or late/non-payment.

Where Enterprise Nation stands on this issue

We welcome the ambition of these proposals. Measures such as capped payment terms, mandatory statutory interest and stronger powers for the SBC reflect calls we've made repeatedly on behalf of our members.

But to truly fix the problem, the government must go further, as laid out below:

• Make e-invoicing the norm: SMEs that use electronic invoicing get paid an average of seven days more quickly, yet the UK is one of only three OECD/EU countries without a national plan to adopt this system.

  In Italy, where e-invoicing is compulsory, the VAT gap has shrunk by over 10%, the number of late payments has fallen and the cost of processing invoices has dropped significantly.

• Phase in mandatory e-invoicing for B2B transactions: This would start with VAT-registered businesses already using digital tools under Making Tax Digital. Support this with financial incentives, as seen in Australia's technology investment boost.

• Resource enforcement properly: Rules only work if they're enforced. The government must equip the SBC with both the remit and backing to challenge persistent late-payers.

Why this matters

Prompt payment is the lifeblood of small business. With nearly half of SMEs still being paid late and nearly 40 firms closing every day, stronger rules and proper enforcement are essential.

Pairing legal reform with digital infrastructure, such as e-invoicing, would not just tackle late payments, but cut admin, boost productivity and give small firms the confidence to grow.

Have your say

This consultation marks the boldest attempt in decades to address late payment. But delivery is everything.

Enforcement must be properly resourced, guidance co-designed with small firms and suppliers protected from backlash when they speak out.

Have your say in the consultation by 23 October, or share your views with us on email.