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Could late payments be a thing of the past? Reforms are coming

3-minute read

Woman with laptop and receipts chasing invoices
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The government is tackling late payments for small businesses by fining big businesses and repeat offenders as part of sweeping reforms.  

In what they’re calling “the toughest crackdown on late payments in 25 years”, big businesses will now be mandated to pay within 60 days when working with smaller suppliers. 

But what does this mean for small businesses and the self-employed?

Reforms: at a glance

  • payment terms set to a maximum of 60 days for big businesses supplying small firms
  • new investigatory powers for the Small Business Commissioner, so you can report businesses with poor practices
  • multi-million pound fines for repeat offenders 
  • mandatory payment terms and interest, meaning compensation for small suppliers if invoice payment deadlines are missed

Fines and mandatory interest on late payments 

The Small Business Commissioner will be given new powers to investigate poor payment practices and will be able to issue multi-million pound fines to the businesses that persistently fail to pay on time.  

And all commercial contracts will have to include a statutory interest on late payments, set at 8% above the Bank of England base rate.

The government hopes these changes will go some way to support small businesses and the self-employed who are regularly facing cash flow challenges with suppliers not paying on time. 

Read more: How write an invoice and free templates

Business Secretary Peter Kyle said: “We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”

FSB Policy Chair Tina McKenzie said: “The new laws will finally bring a stop to big businesses using their small suppliers as sources of free credit.

“For the first time, audit committees and boards will question and challenge poor payment performance, publish it in annual reports for all to see, and put it right. Paying in 60 days is not prompt – but strengthening that as the absolute maximum cap after years of dithering is a good step towards encouraging payments in 30 days across all supply chains.”

These reforms are expected to be phased in later in 2026. And in the next five years, the government hopes to reduce payment terms to 45 days.  

4 steps the self-employed can take today

  1. Inform the Small Business Commissioner if you’re dealing with a business that’s persistently failing to pay on time – the law is giving them new powers to investigate. 
  2. You can add interest clauses to your payment terms – and the law will back you up.
  3. Invoices must be paid in 60 days as a maximum – but there’s no reason why you can’t set your payment terms to 30 days as standard. 
  4. Big businesses can only raise invoice disputes if it’s within 30 days of receiving your invoice – so make sure you send invoices promptly after completing the work.

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Written by

Catriona Fuller

Catriona Fuller is a content and marketing professional with 12 years’ experience across the financial services, higher education, and insurance sectors. She’s also a trained NCTJ Gold Standard journalist. As a Senior Copywriter at Simply Business, Catriona has in-depth knowledge of small business concerns and specialises in tax, marketing, and business operations. Catriona lives in the seaside city of Brighton where she’s also a freelance yoga teacher.

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