Small businesses are finally getting the backing they’ve long been asking for. In what’s being described as the most sweeping set of reforms in over two decades, the UK government is launching a powerful new campaign to take on one of the most damaging issues facing small and medium-sized enterprises: late payments to UK SMEs.
A Turning Point for UK Small Businesses
Every day across the UK, hardworking small business owners lose sleep, and sometimes their livelihoods, because they’re not paid on time. Cashflow issues driven by overdue invoices are more than just an administrative burden; they’re a persistent threat to small business survival.
An estimated 38 businesses shut down every day due to late payments, with the wider impact draining £11 billion annually from the UK economy.
The new reforms signal a turning point. They are part of the government’s broader Plan for Change, which aims to unleash small business growth, improve cashflow reliability, and strengthen the foundation of the UK’s economy from the ground up.
Prime Minister Keir Starmer said: “From builders and electricians to freelance designers and manufacturers; too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses.
“It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.
“Through our Small Business Plan, 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 business to thrive, driving growth across the country through our Plan for Change.”
A Summary of the Late Payment Reforms
The government is preparing to roll out the most robust late payment laws in the G7, backed by legislative muscle and a tougher enforcement strategy:
Stronger Enforcement Powers for Late Payments
The Small Business Commissioner will gain expanded powers to intervene in cases of chronic late payment. For the first time, they’ll be able to issue fines worth millions to large companies that repeatedly delay payments to their smaller suppliers.
Mandatory Payment Timelines
Under the new laws, all large businesses will be required to:
- Verify invoices within 30 days
- Pay invoices within 60 days initially
- Move to a 45 day payment term over time
These deadlines will be backed by mandatory interest charges for late payments, turning overdue invoices into a tangible cost for larger firms that delay paying smaller suppliers.
Audit and Board-Level Accountability
To create top-down pressure for fairer practices, audit committees will now be legally required to monitor and report on payment behaviours. This brings financial fairness onto the boardroom agenda and forces bigger firms to demonstrate they are treating small suppliers with respect.
Why the Late Payment Reforms Matter to SMEs
Small businesses account for 60% of UK employment and generate £2.8 trillion in turnover every year. Despite their contribution, many operate on tight margins and depend on prompt payments to reinvest in stock, pay staff, and cover day-to-day running costs.
For years, SMEs have had to navigate a system skewed in favour of larger, slower-moving buyers. When big companies push out payment terms or delay approving invoices, small firms are left in limbo, forced to chase payments and bear the financial brunt.
By resetting the rules and attaching real consequences to bad behaviour, the government is sending a clear message: paying late is no longer just bad practice, but a business risk.
What Business Owners Should Do Now
Although the new laws are still moving through the legislative process, business owners should start preparing:
- Review your payment terms and invoicing processes. Be ready to operate within the new 30-45 day timeline.
- Track all overdue payments diligently. These reforms may give you more leverage to escalate disputes.
- Check in with larger clients to ensure they’re aware of the upcoming changes, and use this moment to discuss improvements.
- Stay alert to enforcement updates. The Small Business Commissioner will have more tools at their disposal, and your business may benefit from quicker resolution of disputes.
A Reset for Small Business Power Dynamics
For too long, payment delays have felt like an unavoidable part of doing business in the UK. These reforms represent a rebalancing of power, shifting control back to the businesses that need cashflow the most.
With tougher penalties, faster verification processes, and board-level oversight, small business owners may finally be able to focus on growth rather than chasing down overdue invoices.
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