Prompt payment push: UK Government to support SMEs by getting tough on late payments

The UK Government has pledged to tackle the issue of late payments to suppliers as part of a broader plan to stimulate growth within the SME sector (Backing your business: our plan for small and medium sized businesses).

According to Government estimates, late payments cost the UK economy nearly £11 billion annually. SMEs are disproportionately affected, as typically lower cash reserves make it harder to absorb the negative impact that late payments can have on cash flow. To combat this, the Government has launched a consultation on reforms to the current late payment regime, with proposals aimed at strengthening and modernising existing measures.

Large organisations are already subject to payment performance reporting obligations under the Reporting on Payment Practices and Performance Regulations 2017 (the ‘Regulations’). The Regulations promote transparency and encourage timely payments. Businesses can further demonstrate their commitment to timely payment practices by subscribing to the Fair Payment Code (the ‘Code’). The Code, which replaced the ‘Prompt Payment Code’ in December 2024, recognises businesses with gold, silver, or bronze awards for consistently paying suppliers promptly.

The Small Business Commissioner (the ‘Commissioner’), whose remit includes addressing late payments and unfavourable business practices, oversees the Code and is empowered to investigate and assist SMEs in the recovery of late payments. Under the proposed reforms, the Commissioner would gain enhanced powers, including the ability to issue financial penalties to businesses that repeatedly fail to pay suppliers on time. The Regulations would also be amended to increase existing reporting obligations by requiring large organisations to report on their statutory interest liabilities as well.

Additional measures proposed under the consultation include: 

• amendments to The Late Payment of Commercial Debts (Interest) Act 1998, introducing capped payment terms of 60 days, a 30-day deadline for disputing invoices, and mandatory statutory interest on all late payments.
• legislation compelling enhanced scrutiny of payment practices within audit committees and at board level.
• reforms to retention clauses within construction contracts.

The Government has described the measures as the most “significant legislation to tackle late payments in over 25 years” – position the UK as having the “strongest legal framework on late payments in the G7”.

The consultation is open until 23 October 2025, and you can have your say here. You can also read more about the Fair Payment Code and what it means for businesses in our earlier article, New Fair Payment Code for businesses announced.