The UK Government has launched the most significant overhaul of late-payment law in over 25 years, seeking to enforce fairer practices on large companies that harm small businesses. The consultation, which closes on October 23rd, follows data suggesting late payments cause 50,000 business closures annually, costing small and medium-sized enterprises (SMEs) an estimated £684 million each year. (Analysis shared by Markel Direct, the specialist insurer.)

The legislative proposals, put forward by the Department for Business and Trade, aim to improve cash flow fairness for SMEs and increase accountability among larger businesses. The changes are particularly focused on strengthening the financial position of the self-employed and SMEs across the economy.

Key Proposals for New Legislation

The current framework, including the 1998 Late Payment of Commercial Debts Act, has proven insufficient in tackling the problem. This new consultation seeks stakeholder views on several powerful proposed measures:

Maximum Payment Terms: Introducing a legal cap on payment terms, proposed at 60 days, with the potential to shorten this to 45 days in the future.

Dispute Timelines: Requiring disputes over invoices to be raised within 30 days of receipt, after which they would be deemed accepted.

Enforcement Powers: Granting the Small Business Commissioner new enforcement powers, including the ability to issue fines, carry out spot-checks, and oversee arbitration.

Increased Transparency: Mandating that large companies publicly report their payment performance in their annual financial reports.

Statutory Interest: Strengthening the enforcement of statutory interest (currently Bank of England base rate plus 8%) and compensation for late payments.

Construction Reform: Reforming or eliminating construction retention clauses to ensure funds withheld from contractors are safeguarded.

The consultation period will remain open until 11.59pm on October 23rd, 2025. Following the deadline, the government will review feedback, make any necessary legislative amendments, and then progress the draft bill through Parliament. Taking into account the legislative process, any final action may not be implemented until 2026-2027.

The reform is viewed as essential for allowing SMEs—the engine of the UK economy—to invest, hire, and grow without the significant drag caused by poor payment practices.