The UK Government has introduced major new legislation aimed at tackling late payments to small businesses, with ministers describing it as the toughest crackdown in more than 25 years.
The new Small Business Protections Bill was introduced to Parliament on Tuesday and is designed to strengthen protections for sole traders, freelancers and smaller firms across the country.
Under the proposed legislation, large companies would face a strict 60 day cap on payment terms when dealing with smaller suppliers.
The Bill would also introduce mandatory interest charges on late payments set at eight percent above the Bank of England base rate.
Ministers say the reforms are aimed at ending a culture where small businesses are left spending hours chasing unpaid invoices while cashflow pressures threaten jobs, investment and survival.
Government figures released alongside the legislation claim late payments are linked to the closure of 38 businesses every single day across the UK.
The Bill also proposes major new powers for the Small Business Commissioner, including the ability to investigate poor payment practices, adjudicate disputes and issue substantial financial penalties against persistent late payers.
Potential fines for companies repeatedly breaching the rules could reach tens of millions of pounds.
The legislation would also ban the practice of withholding retention payments within construction contracts, something long criticised across the industry.
Prime Minister Keir Starmer said:
“Small businesses are the backbone of our economy run by people who take risks, create jobs and keep communities going.
“This government is firmly on their side.
“Too many small business owners are spending hours chasing money they are owed and when payments don’t come through, the cost is personal.
“It’s about whether you can pay your staff, keep the lights on, or invest in your future.
“Today we’re changing that with the toughest action on late payments in a generation, so small businesses get paid on time and get the backing they need to grow, create jobs and serve their communities.”
Business Secretary Peter Kyle said late payments were costing the UK economy £11 billion every year.
“Late payments choke growth, cost jobs, and force too many good businesses to close.
“That ends today.”
The Bill builds on legislation first introduced under the Late Payment of Commercial Debts Act in 1998 and ministers say the new framework would create the strongest legal protections on late payments anywhere in the G7.
The Federation of Small Businesses has welcomed the proposals following discussions with ministers around reforming payment culture.
FSB Policy Chair Tina McKenzie said:
“Tackling late payment is one of the biggest things the government can do to help small businesses grow.”
The legislation forms part of a wider Government strategy aimed at supporting small businesses through measures linked to rates relief, apprenticeships, access to finance and reducing bureaucracy.
For many small firms across the Highlands and wider Scotland, late payment has long been one of the quiet pressures sitting behind cashflow struggles, sleepless nights and businesses closing despite doing everything right.
If enforced properly, the new legislation could mark one of the biggest shifts in how larger companies deal with smaller suppliers in a generation.
