Late payment reform package with “real teeth” finally in sight

Late payments have held small firms back for years. With major reforms now confirmed, we look at the new protections for businesses.

Late payments have been a stubborn problem in the UK for years, draining time, energy and confidence from the small firms that keep the economy moving. So when the government published its package of late payment reforms on 24 March, it felt like a genuine step forward.

We’re proud to have closely engaged the government during the consultation process, and you can view our published response from last year here.

Late payments cost the UK around £11 billion every year and contribute to the closure of 38 businesses every single day. Those numbers are stark, but anyone who works with SMEs knows the real‑world impact. Delayed invoices that disrupt payroll, projects that stall because cash is tied up elsewhere, and owners spending evenings chasing money instead of running their business.

The benefits for suppliers

The government’s proposals amount to the most significant reforms in more than a quarter of a century. When the legislation is in place, the UK will have the toughest late payment laws in the G7. While we’re still waiting for firm timelines, the overall direction is clearer and far more decisive than many expected.

At the centre of the package are new powers for the Small Business Commissioner (SBC). These include the ability to investigate businesses suspected of poor payment practice, settle disputes without the courts, and issue fines to large companies that repeatedly pay late.

Crucially, the Commissioner will also receive the resources needed to use these powers properly. That’s something we’ve been consistently calling for because enforcement only works when the body responsible has the capacity to act.

Several other measures directly strengthen protections for suppliers. Payment terms will be capped at 60 days, with only limited exceptions. There will be a statutory deadline for raising disputes, reducing the scope for drawn‑out arguments. And mandatory statutory interest will now form part of every commercial contract, ensuring late payers feel the cost of holding up someone else’s cash flow.

Transparency also gets a boost. Large companies with poor payment performance will have to articulate openly, at board level, why their record is weak and what changes they’re making. It’s a practical way of putting accountability where it belongs.

One proposal dropped

The government has chosen not to reduce Payment Practices Reporting from twice-yearly to annual. That’s a sensible decision. Visibility is one of the simplest safeguards against poor behaviour, and reducing reporting would have risked losing it.

Our view

Rebecca Roberts-Hughes, Executive Director of Strategy and Compliance at AAT, said:

“AAT welcomes the government’s announcement of legislation to tackle late payments and strongly supports its commitment to introducing these vital reforms. The confirmed steps – capping payment terms, applying financial penalties to repeat offenders, and giving the Small Business Commissioner much needed powers – match exactly what AAT has long called for.

These measures finally put real teeth into enforcement and hold large companies properly accountable for poor payment behaviour that has hurt small businesses for far too long. This is a game-changing opportunity to shift UK payment culture for good, shield thousands of small firms from cash flow damage, and boost economic growth. We look forward to working with government and industry to ensure these proposals deliver meaningful improvements for SMEs.”

Looking ahead

This isn’t the end of the conversation. We’ll continue working with government and the SBC throughout the legislative process, and we’ll support our members as and when necessary, with practical guidance as the new rules take shape. The reforms may be ambitious, but with the right follow‑through, they can move the UK towards a culture where paying on time isn’t the exception but the norm.

For now, the direction of travel is encouraging. And for many small businesses, the shift can’t come soon enough.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.