...LATE PAYMENT CRACKDOWN TURNS CASHFLOW DISCIPLINE INTO A BOARD ISSUE

The UK government has introduced the Small Business Protections Bill to Parliament, promising the toughest late-payment regime in the G7 and a major reset in how large firms pay smaller suppliers.

The Bill, introduced on 19 May, would impose a 60-day cap on payment terms for large firms paying smaller suppliers, make interest on late payments mandatory, and give the Small Business Commissioner stronger powers to investigate poor payment practices, adjudicate disputes and fine persistent late payers.

The government says late payments cost the UK economy 11 billion a year and close 38 businesses every day. The Small Business Commissioner says business owners spend an average of 86 hours chasing debt, while the new powers could allow penalties against large firms to reach a percentage of turnover, potentially running into many millions for the worst offenders.

For SMEs, this is not just a policy story. It is about whether cash already earned arrives in time to pay wages, suppliers, tax bills, rent and finance costs.

The reform is aimed at payment culture, not just payment terms

Late payment has often been treated as a normal cost of doing business: annoying, unfair, but survivable. The new Bill signals a harder view. If enacted, payment behaviour becomes a governance issue for large firms, with boards or audit committees expected to explain poor payment performance and the steps being taken to improve it.

The reforms also include mandatory statutory interest at 8% above the Bank of England base rate and stronger dispute-resolution powers for the Small Business Commissioner. That matters because late payment is not only a contract problem. It is a working-capital problem that can decide whether a small firm can hire, invest or keep trading.

Construction is directly in scope too. The government says the Bill includes action to ban the practice of withholding retention payments under construction contracts, one of the sector's longest-running cashflow pain points.

Why it matters

For small businesses, cashflow is not an accounting abstraction. It is oxygen.

A profitable business can still fail if customers pay too slowly. That risk is sharper when costs are rising, labour is expensive, credit is tighter and tax obligations are unforgiving. HMRC, payroll, rent and suppliers do not pause because a large customer has stretched payment terms or delayed approval of an invoice.

The human consequence is obvious: owners spend nights chasing money they have already earned instead of building the business. Staff worry about wages. Suppliers get squeezed. Investment gets delayed. Growth becomes defensive rather than ambitious.

For larger businesses, the direction of travel is equally clear. Payment practices are moving out of the back office and into reputation, compliance and board accountability. Slow payment will become harder to defend as normal commercial behaviour.

Practical takeaway

SMEs should not wait for the law to do the work for them. The immediate advantage comes from tightening the credit-control system now.

The minimum operating standard should include:

clear payment terms agreed before work starts

purchase orders or written approval before delivery where possible

invoices issued immediately and accurately

named customer contacts for approval and payment

weekly aged-debt reviews, not month-end surprises

documented escalation steps for overdue invoices

interest and late-payment rights written into terms

clean evidence of delivery, timesheets, approvals and variations

cashflow forecasts that show what happens if major customers pay late

Small businesses should also segment customers by payment behaviour. A large client is not automatically a good client if it uses supplier cashflow as free finance.

Conclusion

The late-payment crackdown is a political response to a commercial reality: small firms cannot grow if they are forced to finance bigger customers.

If the Bill passes in its proposed form, poor payment behaviour will carry sharper legal, financial and reputational consequences. But the strongest SMEs will not rely on enforcement alone. They will run credit control like a core business function.

Getting paid on time is not admin. It is survival, margin and growth....