New laws to crackdown on late payments to small businesses

Ministers have introduced new laws giving stronger powers to investigate and fine firms that persistently fail to pay smaller suppliers on time, with potential penalties worth tens of millions.

The Small Business Protections Bill proposes a new 60-day cap on payment terms for large firms, introducing mandatory interest on late payments.

It would also ban retentions in the construction industry, which is the practice of withholding a percentage of a contractor’s advance payments.

The government says 38 businesses close every day because they are not paid on time, equivalent to 266 a week and more than a thousand each month.

Sir Keir Starmer said the introduction of the legislation marked the “toughest action on late payments in a generation”.

“Too many small business owners are spending hours chasing money they are owed and when payments don’t come through, the cost is personal,” the prime minister said.

“It’s about whether you can pay your staff, keep the lights on, or invest in your future.

“We’re changing that with the toughest action on late payments in a generation, so small businesses get paid on time and get the backing they need to grow, create jobs and serve their communities.”

Mandatory interest on late payments will be set at 8pc above the Bank of England base rate, currently 3.75pc.

The Small Business Commissioner, an independent public body that supports Britain’s 5.5 million small businesses, will get new powers to investigate poor payment practices, adjudicate disputes, and fine the worst offenders.

Peter Kyle, business secretary, said late payments cost the UK economy £11 billion each year.

“Late payments choke growth, cost jobs, and force too many good businesses to close. That ends today.

“Through this landmark bill we are delivering the toughest payment reforms in over a generation, to give the UK the strongest legal framework in the G7, and back small businesses with the certainty they need to grow and thrive.”