On 24th March 2026, the UK government announced the toughest crackdown on late payments in over 25 years, describing it as the largest set of reforms in over a generation. The changes are designed to protect small and medium-sized businesses (SMEs),and improve SME cash flow, in turn improving cash flow across the wider economy.
These new measures build upon and strengthen legislation laid out over 25 years ago in the Late Payment of Commercial Debt Act (1998). Positioned as the toughest laws on late payments in the G7, these reforms are not the only move to stabilise the small business economy. Additional measures, such as the launch of the Prime Minister’s Small Business Plan (2025) and the Business Growth Service, will increase access to finance for SMEs and entrepreneurs.
Why are late payments such a persistent issue for UK SMEs?
The effect of late payments for SMEs goes beyond inconvenience. When small businesses are not paid, a domino effect starts – supplier relationships are weakened, stress levels rise, and in the worst cases, businesses close completely. FSB research shows that in 2022, 52% of small firms in the UK suffered from late payments regularly.
Even if a business is busy and growing on the surface, delayed income restricts payroll, taxes, and time – owners are forced to spend more time chasing unpaid invoices than building their business. A damaging chain reaction begins throughout the supply chain when a power imbalance begins, leaving smaller suppliers feeling unable to challenge larger organisations.
According to UK government research, late payments cost the UK economy £11 billion every year. That’s not all – the government also highlights that 38 businesses close every day due to late or incomplete payments. That’s around 266 businesses per week, and more than 1,000 businesses per month. With over 1.5m businesses affected by late payments each year, this crackdown is a vital move to keep the economy running smoothly and support the growth of small businesses.
Breakdown of the changes to UK late payment regulations
Stronger enforcement and penalties
Under the new UK late payment laws, the Small Business Commissioner (SBC) will approach late payments with stronger enforcement and substantial financial penalties. Multi-million-pound fines are set to target big businesses and persistent offenders, and could amount to a percentage of a business’s turnover.
Payment terms and statutory interest
The late payment crackdown will enforce a maximum 60-day payment period for large firms paying smaller suppliers, plus mandatory statutory interest on late payments, which will be required in all commercial contracts. This interest will be set at 8% above the Bank of England base rate. The proposal aims to prevent small firms from losing retentions to insolvency or non-payment.
In summary, the changes will be as follows:
- Stronger enforcement and substantial financial penalties for late payments
- Maximum 60-day payment period for large firms paying smaller suppliers
- Mandatory statutory interest on late payments
- Proposals to eliminate unfair retention payments in construction contracts are ongoing
How new UK late payment laws affect SMEs
The government’s new crackdown on late payments is specifically designed to protect SMEs, resulting in an improved SME cash flow and helping to tackle the cost of living pressures for entrepreneurs and small business owners. Late payments have historically had a significant impact on small businesses – in 2015, £67.4 billion of unpaid invoices were owed to UK SMEs.
Before and after the reforms: a comparison
Before the reforms
- Late payments were a persistent and widespread issue across the UK economy
- SMEs often faced:
- Long and uncertain payment times
- Inconsistent enforcement of existing legislation
- While the Late Payment of Commercial Debt Act (1998) existed:
- Protections were often underused
- Enforcement lacked meaningful consequences for persistent offenders
- Large businesses could:
- Delay payments with limited financial and compliance risk
- Use extended payment terms that placed pressure on smaller suppliers
- Statutory interest:
- Was available in theory
- Not consistently applied or enforced in practice
- SMEs frequently absorbed the impact of late payments through:
- Cash flow strain
- Increased financial pressure on owners
- Scale of the issue:
- £11 billion cost to the economy every year
- 38 businesses closing every day due to late or incomplete payments
- £67.4 billion of unpaid invoices owed to SMEs (2015)
After the reforms
- Late payments are positioned as a regulatory issue with clear consequences
- The government introduces:
- Stronger enforcement
- Substantial financial penalties
- Persistent late payers may also now face:
- Multi-million-pound fines
- Penalties linked to a percentage of turnover
- Payment terms are clearer and more consistent:
- Maximum 60-day payment period for large firms paying smaller suppliers
- Statutory interest is no longer optional:
- Mandatory statutory interest required in all commercial contracts
- Set at 8% above the Bank of England base rate
- SMEs gain:
- Stronger legal backing when payments are late
- Greater leverage when dealing with larger organisations
- Proposed changes around retention payments:
- Aim to prevent small firms losing retentions to insolvency or non-payment
- Overall focus shift towards:
- Protecting SME cash flow
- Reducing business closures
- Supporting entrepreneurs facing cost-of-living pressures
Under these reforms, small and medium businesses will gain stronger legal backing when payments are late. The addition of financial penalties for persistent late payers aims to keep larger firms accountable when processing payments.
How a managed accounting service can help
A professional accounting provider can support SMEs to manage late payments, monitor late payment terms, and track overdue invoices – easing financial pressure caused by delays.
MSP Chalkdell can help to ensure that statutory interest is applied when required, and that all contracts include new mandatory statutory interest clauses. This ongoing oversight of payment behaviour reduces the administrative burden on SME owners and financial teams dealing with late payments.