At the centre of the reforms is a substantial expansion of the Small Business Commissioner’s powers, including the authority to investigate poor payment practices, adjudicate disputes, and impose fines worth tens of millions of pounds on persistent offenders.

Late payments currently cost the UK economy an estimated £11 billion every year. Around 38 small businesses close every day as a direct result of not being paid on time – more than a thousand a month – whilst countless others, from sole traders and freelancers to family firms, are forced to waste time and resources chasing invoices instead of focusing on growth.

The reforms build on the Late Payment of Commercial Debt Act 1998 and go considerably further than previous governments have been prepared to go. Key measures include a new 60-day cap on payment terms for large firms when paying smaller suppliers, and the introduction of mandatory interest on late payments, set at 8% above the Bank of England base rate, which will be required in all commercial contracts.

Under the new rules, for instance, a small business owed £10,000 and paid 60 days late would be entitled to recover the original sum plus statutory interest and compensation. The UK government also proposes to ban the withholding of retention payments in construction contracts, a practice that has long left small firms vulnerable to losses through insolvency or non-payment.

Boards and audit committees of persistently late-paying large companies will additionally be required to publish explanations of poor payment performance and set out the steps they are taking to address it.

Business Secretary Peter Kyle said the status quo was “simply unacceptable”, adding that the changes would “transform the fortunes of small businesses for years to come”.

Minister for Small Business and Economic Transformation Blair McDougall, who has spoken openly about personal experience of cashflow difficulties, described the package as “genuinely game changing”.

The Federation of Small Businesses, which worked closely with the government to shape the proposals, welcomed the announcement. Policy Chair Tina McKenzie said the new laws would “finally bring a stop to big businesses using their small suppliers as sources of free credit,” though she noted that 60 days remains far from prompt payment and expressed hope that the reforms would drive progress towards 30-day payment terms across supply chains.

The Association of Chartered Certified Accountants (ACCA) also gave the proposals a warm reception, calling them a decisive moment in the effort to end late payment. Glenn

Glen Collins, ACCA UK’s head of technical and strategic engagement, said the targeted focus on large businesses failing to pay smaller ones, rather than a blanket approach, was an important feature of the proposals.

Evidence from ACCA’s global economic confidence survey suggests that small business anxiety over cashflow suppresses both hiring and capital investment, and the body believes the reforms could unlock significant growth if implemented effectively. ACCA acknowledged that businesses will face initial compliance costs and system adjustments, but argued that for those who pay on time, the ongoing burden should be minimal.

ACCA also welcomed the “comply or explain” principle embedded in the proposals, which allows companies to account for circumstances that cause payment to fall outside normal credit terms — a principle it regards as well understood and sensibly applied here.

One practical concern the reforms address is that, whilst the right to charge interest on late payments has existed since 1998, smaller businesses have consistently avoided exercising it for fear of damaging long-term commercial relationships. Making interest mandatory removes that pressure entirely.

Small Business Commissioner Emma Jones said her office was already recovering significantly more overdue invoices than in previous years, and that the new powers would allow it to go further: “These reforms will reduce the hours spent chasing debt allowing small businesses to focus on more productive and enjoyable growth.”

The measures follow last year’s launch of the Small Business Plan and sit alongside a £4bn finance boost for SMEs and entrepreneurs. The government has framed the reforms as part of a broader, more interventionist approach to economic management – one aimed at supporting small businesses, controlling inflation, and improving resilience against global economic shocks.