The Government Just Announced the Biggest Late Payment Crackdown in 25 Years

This is the third straight post that is not about web design. I promise I have not changed careers. But this one matters too much to skip, because late payments kill more small businesses in this country than bad products, bad marketing, or bad luck combined.

On 24 March, the government announced what it is calling the toughest crackdown on late payments in over 25 years. The language is strong, but the details back it up. If you are a small business that invoices other businesses, especially larger ones, this is worth ten minutes of your time.

We covered Making Tax Digital and the employment law changes earlier this week. This is the third piece of the puzzle: how and when you get paid.

The scale of the problem#

Late payments cost UK small businesses roughly £11 billion a year. About 38 businesses close every single day because they could not get paid on time. At any given moment, UK businesses are collectively owed around £26 billion in overdue invoices.

That is not a rounding error. That is a structural failure in how bigger companies treat their supply chains. A large firm sits on your invoice for 90 or 120 days, earns interest on the cash in the meantime, and you are the one sweating about whether you can make payroll. If you have ever chased a payment that was two months overdue while the client's accounts team told you it was "in the system," you already know exactly how this works.

The FSB has been campaigning on this for nearly two decades. The government has finally moved.

What is actually changing#

There are four main changes. Each one is significant on its own. Together, they are a genuine shift.

A 60-day cap on payment terms#

Large businesses will be required to pay smaller suppliers within 60 days. That is a hard cap, written into law, not a suggestion or a best-practice guideline. If you are a small business invoicing a larger one, they will not be allowed to set terms longer than 60 days.

The government's plan is to reduce this further to 45 days within five years. The exemptions are narrow: contracts between two large companies can set their own terms, but whenever a larger firm is paying a smaller supplier, the cap applies.

This matters because plenty of big companies currently impose 90-day or even 120-day payment terms on their smaller suppliers, and the small business has no leverage to push back. That leverage is now coming from the law instead.

Mandatory interest on late payments#

Every commercial contract will be required to include a statutory interest clause on late payments, set at 8% above the Bank of England base rate. Right now, with the base rate at 4.5%, that means 12.5% annual interest on overdue invoices.

This is not new in theory. The Late Payment of Commercial Debts Act has allowed businesses to charge interest since 1998. But in practice, almost nobody does it because you are afraid of annoying the client you are still trying to get paid by.

The difference now is that the interest will be mandatory. It is not something you choose to add or choose to waive. It is statutory and automatic. That changes the calculation for any big company sitting on your invoice. Paying late just became expensive.

The Small Business Commissioner gets real powers#

This is the biggest structural change.

The Small Business Commissioner has existed since 2017, but until now it has been toothless. It could name and shame. It could write reports. It could not actually do anything.

That is changing. Under the new rules, the Commissioner will be able to:

• Investigate businesses suspected of poor payment practices, without needing a complaint first
• Conduct spot checks and enter premises
• Adjudicate payment disputes without either side having to go to court
• Enforce a 30-day invoice verification period, meaning a client has 30 days to raise a dispute about an invoice, and if they do not, they have to pay in full within the agreed terms
• Compel businesses to disclose payment data
• Fine persistent late payers, with penalties potentially running into tens of millions of pounds

That last point is the one that changes behaviour. Until now, paying small suppliers late was essentially free. The worst that could happen was some negative press from a Payment Practices Report. Now there is a regulator with the power to investigate, judge, and fine. That is a fundamentally different situation.

Construction retention ban#

For anyone in the construction industry, there is an additional change. The government is proposing to ban the practice of withholding retention payments under construction contracts. This has been one of the most damaging payment practices in the sector, where larger contractors hold back a percentage of the contract value for months or years, and small subcontractors regularly lose that money entirely when the contractor above them goes bust.

A consultation on how the ban will be implemented is expected, but the intent is clear: retentions are being abolished.

When does this all take effect#

The legislation was announced on 24 March 2026. Some of the measures, particularly the expanded Commissioner powers, are expected later this year. The 60-day payment cap is not expected to be enforced before 2027 at the earliest.

That might sound like a long way off, but big companies are already paying attention. The smart ones will start adjusting their payment practices before the law forces them to, because no finance director wants to be the one explaining to the board why the business is under investigation by the Small Business Commissioner.

What you should do now#

You do not need to wait for the law to take effect to benefit from it. Here is the practical list.

Tighten your invoice terms. If your invoices currently say "payment within 30 days" and your clients are paying in 60 or 90, start following up firmly at day 31. The new rules give you a stronger position even before they are enforced, because your client knows the direction of travel.

Start quoting statutory interest. You have the right to charge interest on late payments now, under the existing Late Payment of Commercial Debts Act. Most small businesses do not know this. You can charge 8% above the base rate. You do not need permission. You do not need it in your contract. It is the law already. Adding a line to your invoices that references statutory interest makes it real.

Keep clean records. If the 30-day invoice verification period becomes law, you need to be able to prove when you sent the invoice, what it was for, and that no dispute was raised within 30 days. Use proper invoicing software. Send invoices as PDFs with clear dates, reference numbers, and payment terms. If you are still doing this by email with no system behind it, sort that out now.

Know the Small Business Commissioner exists. If you have a persistent late payment problem with a larger client, you can already raise a complaint with the Commissioner. The powers are expanding, but the complaints process is live now. Use it.

Review your contracts. If you have ongoing agreements with larger businesses that include payment terms longer than 60 days, flag them internally. Those clauses are going to become unenforceable once the cap takes effect. Getting ahead of that conversation is better than having it forced on you.

The bigger picture#

This is the third major change to hit small businesses in April, after Making Tax Digital and the employment law changes. The direction is the same across all three: more structure, more enforcement, more expectation that you are running your business with proper systems in place.

The late payment crackdown is different from the other two in one important way. MTD and the employment changes add cost and admin to your business. This one is designed to put money back in your pocket. If it works as intended, you will get paid faster, with interest when clients are late, and with a regulator standing behind you who can actually do something about it.

That is worth an afternoon of getting your invoicing and contracts in order.