The proposed legislation will grant new powers to the Small Business Commissioner, enabling them to conduct spot checks and impose significant fines on large firms that persistently fail to pay suppliers on time.

And the reforms will introduce a mandatory maximum payment term of 60 days, enforce a 30-day invoice verification period to accelerate dispute resolution, while corporate audit committees will be required to scrutinise payment practices at board level, with mandatory interest charges for late payers adding financial pressure to comply.

With regard to the legal cap on payment terms, Mr McAdam notes that, at present, companies can agree to longer terms if they are not considered ‘grossly unfair’, and that this change would remove that flexibility altogether.

“The intention is to stop larger firms from pushing smaller suppliers into accepting excessive payment delays,” he said.

“It is designed to give certainty, support cashflow for SMEs, and curb the practice of deliberately holding back payments. The government also intends to cut the limit further to 45 days within five years.”

Noting that the current law in relation to mandatory interest and compensation on late payments gives businesses the right to claim interest if invoices are paid late, though larger firms can often include terms that limit interest to low rates, Mr McAdam said the government now proposes making the payment of interest mandatory once the due date has passed.

“Businesses would no longer be able to offer or agree to alternative arrangements,” he said. “Late payments would attract a statutory charge of 8% above the Bank of England base rate, and parties would be prevented from negotiating different rates of compensation.”

Under the proposals, any issues or disputes about an invoice would need to be raised within 30 days of receipt, and, after that point, the invoice would be treated as accepted and payable.

“This is intended to stop companies from using ‘disputes’ as a tactic to stall payments and to make payment behaviour more transparent,” said Mr McAdam.

And although large companies are currently required to report on their payment performance, there is no regulatory penalty for those who repeatedly fail to pay on time.

“The reform would give the Small Business Commissioner powers to fine businesses that consistently pay late,” he said. “The proposals include that any enforcement action would take account of mitigating circumstances, past behaviour, and evidence of change.”

Mr McAdam notes that the role of the Small Business Commissioner would be expanded significantly, including: the ability to launch investigations into poor payment practices based on evidence, tip-offs, or public data; the authority to compel businesses to hand over information during disputes and investigations; the power to penalise companies that refuse to cooperate and the right to audit and verify payment reports submitted under existing transparency rules.

“Larger companies would also face new corporate governance duties, including: publishing information on payment practices in their annual reports; allocating board-level responsibility for supplier payment policies; disclosing performance data such as the average time taken to pay SMEs, with the aim being to ensure that payment practices are treated as a strategic issue at senior level, with clear accountability and oversight,” he said.

“Taken together, these reforms represent a significant move to tackle the issue of late payments,” he said.