Small businesses have hailed a clampdown on late payments as a “historic moment” with new laws set to fine firms that are the worst offenders.
Measures to tackle poor practices by firms when it comes to paying their suppliers were welcomed by the industry.
Legislation set out in the King’s Speech includes giving the Small Business Commissioner new powers to investigate businesses suspected of poor payment practices and adjudicate disputes outside of the courts.
It also means the potential to fine businesses that persistently pay their suppliers late or do not comply with the laws.
The Small Business Commissioner is an independent public body set up by the Government to tackle late payments and unfair practices.
The reforms will also impose a maximum payment term of 60 days, with limited exemptions, enforce mandatory interest for late payments at 8% above the Bank of England’s base rate, and introduce a time limit for raising invoice disputes before a payment is due.
The measures, which come under the Late Payments Bill, apply to UK-to-UK business transactions and do not affect global supply chains or international trade.
Tina McKenzie, policy chair of the Federation of Small Businesses (FSB), said: “The formal commitment to legislation to stamp out late payments is an historic moment for small firms, who have spent years battling a culture of poor payment practices by big businesses towards their smaller suppliers.
“FSB worked closely with the Government to help shape these law changes and we’re grateful ministers have listened to the voice of small businesses.”
The organisation said late payment “destroys thousands of viable small firms each year” and that poor practices have seen large firms using “small suppliers as a free overdraft”.
The impact of late payments cost the UK economy £11 billion each year and leads to the closure of 38 UK businesses every day, according to research shared by the Government.
Alan Vallance, chief executive of the ICAEW, said: “Time spent chasing payments is time that is not being used by businesses to win new work and grow, and this legislation will make a real difference to payment culture.”
Rain Newton-Smith, chief executive of the CBI, said the measures to support smaller firms were “positive” but insisted that they be “balanced carefully against the need to protect the competitiveness of larger businesses – particularly those operating across complex supply chains”.
The Government stressed that its reforms will be deliberately targeted at firms that are the worst offenders for late payments and will not affect the “vast majority” of large companies that pay suppliers on time.
The Small Business Commissioner recovered more than £1.55 million in late payments for small businesses in the 2025-26 financial year.