The new measures, part of a “Plan for Change”, are designed to give the UK the toughest late payment laws in the G7 and provide a vital boost to an SME sector that employs 60% of the country’s workforce.

At the heart of the plan is a crackdown on late payments, an issue that costs the UK economy an estimated £11 billion annually and leads to the closure of 38 businesses every day. 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.

The reforms will introduce a mandatory maximum payment term of 60 days, which will later be reduced to 45 days. They will also enforce a 30-day invoice verification period to accelerate dispute resolution. Furthermore, corporate audit committees will be legally required to scrutinise payment practices at the board level, with mandatory interest charges for late payers adding financial pressure to comply.

Prime Minister Keir Starmer said: “From builders and electricians to freelance designers and manufacturers – too many hardworking people are being forced to spend precious hours chasing payments… It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.”

Alongside the late payment reforms, the government is launching a £4bn financial support package to address another major barrier for SMEs: access to funding. This includes a £1bn boost for new enterprises through 69,000 Start-Up Loans, which come with mentoring support.

The British Business Bank’s ‘ENABLE’ programme will also receive a £3bn uplift, increasing its total guarantee to £5bn. This government-backed guarantee encourages lenders to offer more favourable loan terms to smaller or newer businesses, making finance more accessible and affordable.

Business and Trade Secretary Jonathan Reynolds commented: “Our Small Business plan – the first in over a decade –  is slashing unnecessary admin costs, making it easier for businesses to set up shop and giving SMEs the financial backing they need.”

Glenn Collins, Head of Technical and Strategic Engagement at ACCA (the Association of Chartered Certified Accountants), welcomed the announcement.

“ACCA applauds the government for acknowledging the vital contribution that small and medium sized business (SMBs) make to the UK economy,” he said. “We also welcome that this recognition… is being backed up by action – action that ACCA and its members have been calling for loudly and consistently over many years.”

On the specific measures, Mr Collins noted: “Late payment is a persistent problem that is crippling SMBs, so more robust action is warmly welcome.

“ACCA previously called for stronger powers for the Small Business Commissioner in addition to greater corporate responsibility for prompt payment. However we recognise that this is a complex issue and further detailed discussions will be required to ensure new legislation is both practical and effective for businesses.”

He added that the boost to start-up loans and the extension of the Growth Guarantee Scheme were welcome news: “We know as key advisers to small firms, our members will be working hard with the business community to access the finance they need at the time they need it.

“In particular we welcome the Bank’s flagship Growth Guarantee Scheme, established in August 2022, has been extended through the Spending Review period to 5 April 2030. This puts the scheme on a long-term footing and gives finance providers and smaller businesses certainty about its future. We know our members are integral to making sure that this scheme works as intended.

“At a time when our ongoing research shows business confidence is at a low ebb, we hope that this positive action to tackle longstanding barriers to small business growth will provide a much-needed boost of confidence.”