The UK has unveiled the G7’s strictest late-payment legislation, targeting large businesses that routinely delay payments to their suppliers. The new measures — described by ministers as “the toughest in Europe” — introduce a binding 60-day cap on supplier payment terms, due to reduce to a maximum of 45 days by statute, and usher in board-level oversight, mandatory disclosure, and sharp financial penalties for persistent offenders.
The incoming rules apply to companies with more than 250 employees or meeting specific financial thresholds, affecting thousands of major UK businesses across all sectors. From January 2025, these firms must formally disclose their supplier payment performance in annual reports, including average time to pay and the proportion of late invoices. Audit committees will be responsible for reviewing these disclosures, signalling a step-change in boardroom accountability and transparency.
Firms found paying 25% or more of invoices late over a six-month period will face fines equal to double the statutory interest owed — with the Small Business Commissioner newly empowered to conduct spot checks, open investigations, and issue multi-million-pound penalties for repeat breaches. These reforms mark a substantial escalation of the Payment Practices and Performance Regulations 2017, which have now been extended to April 2031 with further review planned for 2029.
The urgency of the crackdown reflects the scale of the late-payment crisis. Research from the Federation of Small Businesses (FSB) shows 61% of UK SMEs — roughly 2.8 million firms — have experienced late payments, with the average overdue sum reaching £6,000. Late and extended payment terms are cited as a key driver of SME insolvency, contributing to an estimated 50,000 business closures each year and imposing a direct £11 billion annual drag on the UK economy.
Prime Minister Sir Keir Starmer called the situation “unfair, exhausting… and holding Britain back,” adding, “it’s time to pay up” for the country’s small, hard-working firms. Business Secretary Jonathan Reynolds described the crackdown as “an essential fairness measure” and central to the government’s ambition to “restart growth in an economy that has contracted after consecutive months of decline.” Tina McKenzie, chair of the FSB, welcomed the move as “bold and long-overdue,” particularly applauding the extension of boardroom accountability and corporate transparency.
The government’s late-payment reforms sit within a wider SME support package that includes £4 billion in startup and growth finance, ongoing audit reforms, and a new Fair Payment Code initiative. Technical amendments will also require construction firms to disclose retention payment data from April 2025, addressing persistent issues around delayed settlement of project payments and safeguarding subcontractors’ cash flow.
Yet, some stakeholders remain cautious about implementation. The Institute of Chartered Accountants in England and Wales (ICAEW) questioned whether embedding these disclosures in annual reports would drive effective change, warning of “report overload” and the risk that compliance becomes a box-ticking exercise, rather than delivering meaningful progress in payment culture.
The economic backdrop amplifies the significance of the reforms. The UK recently recorded two consecutive months of negative GDP growth, while high interest rates and persistent cost pressures have left many SMEs struggling with cash flow and forced to rely on overdrafts or emergency financing. Industry analysts point to the broader market implications: improved payment discipline may enhance the reputational standing of reliable payers, while large firms with poor track records could face increased credit risk scrutiny and potential consequences for future borrowing or investment.
As the new rules approach, large corporates are under mounting pressure to overhaul payment practices and avoid regulatory exposure. For SMEs, the reforms promise a fairer commercial environment and increased visibility into the payment reliability of potential partners. Further debate on the specifics of enforcement, reporting standards, and sectoral adaptation is expected in the coming months as the business community prepares for implementation.
