Small firms just got new rights on late payments – here's what you need to know

It's a story every small business knows: you do the work, send the invoice, then wait... and wait.

Late payments are more than an inconvenience – they're a drain on time, cash flow and mental bandwidth. We spoke to 10 Enterprise Nation members about how it affects them.

Late payments cost the UK economy £11 billion a year and shut down 38 businesses every single day.

Enterprise Nation has been fighting to bring this higher up the government's agenda because we know it's still a big problem. In fact, 23% of our members say they're still being paid late.

Now, in the most far-reaching shake-up in a generation, the government has announced a suite of legal reforms designed to change that.

Here's what small firms can expect if the proposals are implemented as planned.

Big changes for big businesses

For the first time in years, the government is proposing clearer, enforceable limits on how long a business can keep a supplier waiting for payment.

These include the following:

• Strengthened maximum payment terms of 60 days for transactions between UK businesses

• A 30-day deadline to raise invoice disputes, reducing the risk of indefinite delays

• Mandatory interest charges on late payments at the statutory rate, removing the need for suppliers to request compensation or accept lower terms

• Greater scrutiny of payment practices by company boards and audit committees, with government exploring new requirements for commentary and oversight before payment data is submitted

• Public reporting of statutory interest owed and penalties for persistent late-payers

Together, these proposals aim to shift the burden back onto buyers, where it belongs.

More power for the Small Business Commissioner

The Commissioner will be given a stronger enforcement role, with new powers under consideration such as the following:

• Conducting spot checks to verify large firms' reported payment data

• Compelling companies to disclose information when under investigation

• Issuing financial penalties or making legally binding arbitration awards

• Enforcing the new 30-day invoice verification deadline

These changes are designed to give small businesses a genuine route to challenge poor payment practices.

Tackling unfair retention clauses in construction

In the construction sector, it's been suggested that "retention clauses" may often be used to delay payments for months or even years until project completion.

The government is now consulting on:

• banning retention clauses altogether, or

• requiring protections that ring-fence retained funds, shielding them from insolvency or late/non-payment

If implemented, these reforms could improve cash flow for small contractors and level the playing field across the industry.

Public sector supply chains: Firmer rules from 2025

From October 2025, new measures will apply to firms working on public sector contracts:

• Spot checks will be carried out to make sure good payment terms are passed down the supply chain.

• Findings will be published to improve transparency and accountability.

• Suppliers who fail to pay invoices within an average of 45 days may be excluded from large government contracts.

• The government is also consulting on extending this exclusion policy beyond central government to cover NHS Trusts and local authorities.

For small firms in public sector supply chains, this could mean faster payments and stronger protections.

Our view

Enterprise Nation has long called for tougher enforcement, better digital infrastructure (including wider adoption of e-invoicing) and stronger visibility for the Small Business Commissioner. Many of these proposals reflect those calls.

Daniel Woolf, Enterprise Nation's head of policy and government relations, says:

"Late payment is a systemic and longstanding barrier to small business growth. We're pleased to see government recognising its impact through these ambitious proposals.

"We particularly welcome the focus on capping payment terms, mandating board-level scrutiny of payment practices and strengthening the Commissioner's powers, including spot checks and enforcement tools. These are the interventions small firms have called for time and again.

"Enterprise Nation has consistently highlighted the cumulative cost of delayed payments, not just in lost revenue, but in time, stress and missed opportunities to grow.

"We've also championed the wider use of digital tools, including e-invoicing, to help small firms escape the admin burden of chasing what they're owed."

What comes next?

This is a bold agenda, but delivery is everything. Enforcement must be properly resourced, guidance co-designed with small businesses and suppliers protected from backlash when they speak out.

This isn't about creating conflict between buyers and suppliers. It's about building trust and ending a culture of delay that has held too many firms back for too long. If implemented as promised, this could be a turning point.

Have your say by getting in touch.

People also read

• The new government plan for small business: What it means for small firms across the UK

• Adviser Paul Grant on funding, focus and the future for UK small businesses

• Late payments: Tips to help small businesses get paid on time