The government’s announcement of expanded powers for the Small Business Commissioner marks a decisive shift in the UK’s approach to late payment. For the first time, persistent late payers face the prospect of meaningful financial penalties, alongside enhanced dispute resolution powers and tighter statutory controls on payment terms.

Published: 24 March 2026
Authors: Michelle Craven-Faulkner

This is a significant moment. Late payment has long been recognised as a structural drag on the UK economy, disproportionately affecting SMEs that lack the leverage to challenge poor payment practices. Government research suggests late payments cost the UK economy almost £11 billion each year, with businesses spending significant time and resource simply trying to recover money they are already owed.

Real accountability, not voluntary codes

While voluntary initiatives such as the Fair Payment Code and payment practice transparency reporting have helped improve awareness and behaviour in some quarters, they have not been sufficient to change conduct among the worst offenders. The same is also true when considering the impact of the Procurement Act 2023 , which, despite mandating clear 30 payment terms throughout the supply chain, is in our experience often overlooked or poorly embedded in day to day commercial practice.

The new regime is materially different. Under the proposals announced by government, the Small Business Commissioner will be given the power to issue financial penalties against large businesses that are persistent late payers, with those penalties potentially calculated as a percentage of turnover. For some organisations, that could equate to penalties running into millions of pounds, elevating late payment from an operational issue to a genuine financial and governance risk.

A strategic moment for all businesses

In addition, the Commissioner’s role will be expanded to include a new adjudication function, enabling late payment disputes to be resolved out of court. This is intended to provide SMEs with a more accessible route to redress, reducing reliance on litigation and addressing the commercial reality that many suppliers are reluctant to pursue customers through the courts.

These powers sit alongside other measures announced as part of the wider package, including a mandatory 60 day cap on payment terms for large businesses paying smaller suppliers and mandatory statutory interest on late payments, with contracts required to include interest at 8% above the Bank of England base rate. Taken together, these reforms are designed to give the UK what the Government has described as the strongest late payment framework in the G7, combining cultural change with enforceable sanctions.

These developments build directly on themes that we have explored in our earlier thought leadership on late payment reform, including:

• Prompt payment push: UK Government to support SMEs by getting tough on late payments
• Payment terms – what are the current rules and those coming down the track
• New Fair Payment Code for businesses announced

One thing our articles have consistently highlighted is a core issue we continue to see in practice: contractual rights mean little if SMEs are reluctant or unable to enforce them. Strengthening the Commissioner’s enforcement and adjudication role is expressly intended to address that imbalance and rebalance negotiating power across supply chains. In addition to the Commissioner’s role, public authorities awarding contracts under the Procurement Act will assess past payment compliance, meaning a poor record in paying suppliers will adversely impact businesses’ opportunities to win public contracts.

For businesses up and down the supply chain, the message is clear. Now is the time to review payment terms, invoicing practices and dispute processes, and to ensure internal practices align with the direction of travel. For those that get this right, prompt payment is not just compliance — it is a competitive advantage. For those that do not, the cost of paying late is about to rise sharply.

What businesses should be doing now

Large organisations should:

• audit payment practices across all suppliers, not just SMEs, to identify systemic delays or long payment terms.
• review standard contract terms to ensure payment periods do not exceed the proposed 60 day cap and that statutory interest provisions are properly included.
• strengthen internal governance,, ensuring boards, audit committees and finance teams understand the potential financial and reputational consequences of persistent late payment.
• prepare for greater scrutiny, including the possibility of Commissioner led investigations, adjudication and turnover linked penalties.

SMEs and suppliers should:

• understand their rights to statutory interest and enforcement under the new regime.
• tighten invoicing and dispute processes to ensure invoices are clear, accurate and promptly issued.
• consider early engagement with the Small Business Commissioner, particularly where late payment is persistent and informal escalation has failed.
• factor payment behaviour into commercial decision making, including supplier and customer selection.