Late payment reforms sharpen supplier rights

The Small Business Commissioner has set out the next stage of the UK’s late payment reforms, including new enforcement powers, anonymous complaints, a proposed 60-day payment term cap, and automatic statutory interest on overdue invoices.

The Office of the Small Business Commissioner said the government’s Commercial Payments Bill, also referred to as the Small Business Protections Bill, has recently entered Parliament and is intended to establish the toughest late payment regime in the G7.

The reforms would significantly expand the Commissioner’s role from mediation towards enforcement. The OSBC said the legislation would give it powers to investigate persistent poor payment practices by larger businesses, adjudicate disputes outside the court system, and issue financial penalties to persistent offenders that could run into the tens of millions of pounds.

The package also includes anonymity for claimants, allowing the OSBC to investigate larger companies on the basis of anonymous complaints. That provision is designed to reduce the risk of retaliation against smaller suppliers that rely on larger customers for future work.

Large companies would only be able to impose a maximum of 60-day payment terms on smaller suppliers. Statutory interest of 8% above the Bank of England base rate would apply automatically to overdue invoices, removing the ability of companies to contract out of late fees.

The Commissioner’s office said the combination of its work and the new legislation is intended to eliminate the £11bn annual drag caused by late payments. It said the UK’s 5.5 million small businesses remain exposed to the cash flow effects of delayed settlement, with time spent chasing invoices diverted away from productive work.

Emma Jones CBE, the Small Business Commissioner, said: “Having started, scaled, and sold businesses myself, I know first-hand how draining it is to chase the money you have already rightfully earned. This year, our small but mighty team has focused heavily on reducing the hours business owners waste on non-productive tasks so they can reinvest that energy back into growth.”

Joint research from the Department for Business and Trade and the OSBC found that UK small businesses lose 133 million hours of staff time every year chasing overdue invoices, averaging 86 hours per affected business.

During Jones’s first year, the OSBC said it recovered £1.5m for small businesses experiencing late payments, launched guidance and digital support, worked on policy with the Department for Business and Trade, and expanded the Fair Payment Code. More than 600 businesses are now on the code, including HSBC, Barclays, NatWest, Nationwide, Heathrow Airport, Amey, Kier, AXA, BAE Systems, Boeing, BT, and Welsh Water.

Payment discipline is no longer only a relationship issue between buyer and supplier. If the legislation passes in its current form, finance, procurement, and operations teams will need to treat payment behaviour as a compliance and governance risk. Payment terms have often been used as a working capital lever, especially by larger companies with stronger bargaining power over smaller suppliers. A stricter regime would make some of those practices harder to defend and potentially more expensive to maintain.

The commercial effect will depend on how companies manage supplier finance, purchase order controls, invoice approval workflows, dispute processes, and payment runs. A business can meet a headline 60-day term while still creating cash flow pressure through delayed approvals, unclear documentation requirements, repeated invoice queries, or fragmented procurement systems. Enforcement powers are likely to bring greater scrutiny of the behaviours behind payment performance, not only the written terms.

Smaller suppliers have carried the cost of weak payment discipline for years. Late settlement can push up overdraft use, delay hiring, reduce investment, weaken resilience, and force founders to spend time on administration rather than sales, production, or service delivery. The 133 million hours figure gives the problem an operational dimension as well as a financial one.

The anonymity provision could prove particularly significant. Many small suppliers are reluctant to challenge large customers because the commercial relationship can be more valuable than the individual invoice. If complaints can be raised without immediate exposure, regulators may gain better visibility of systemic patterns, especially where delayed payment is normalised across a buyer’s supplier base.

Automatic statutory interest would also change incentives. Late payment interest has existed in principle, but smaller companies often avoid charging it because of relationship risk or uncertainty about enforceability. Making interest automatic would shift the burden. Larger buyers would need to assume overdue invoices carry a financial consequence unless properly resolved.

Larger companies will need reliable data on payment terms, actual payment times, disputed invoices, supplier concentration, and complaints. Procurement teams will need to ensure contract terms align with the new regime, while accounts payable teams may need to review automation, escalation, and exception handling. Where responsibility is split across procurement, finance, legal, and operations, weak internal ownership could become a source of regulatory exposure.

The reforms would be especially relevant in sectors with long chains, including construction, facilities management, manufacturing, logistics, technology services, and professional services. A delay at the top of the chain can cascade through subcontractors, freelancers, and specialist suppliers, turning one buyer’s cash management decision into a wider resilience problem.

Jones’s second year in office will now be defined by implementation. The OSBC must prepare for a broader enforcement role while maintaining support and casework quality for smaller companies. Larger buyers have a shorter window to clean up systems, terms, and behaviours before late payment becomes a more direct regulatory and financial risk.