Around 38 businesses a day shut down due to late payments. Long waits for significant amounts of money – sometimes taking months or years to be paid – often proves too much for small businesses to bear. It is also having an economic cost of around £11bn a year. 

In response to this, the government will give the Small Business Commissioner new powers to investigate poor payment practices, adjudicate pay disputes and fine companies paying persistently late.

ICAEW has campaigned for tighter rules around late payments for several years. In 2020, it supported proposals for increased powers for the Small Business Commissioner; in 2022, it worked with the Commissioner to promote the importance of prompt payments and again pushed for increased powers for the Commissioner in 2023. ICAEW reiterated its stance as the current government reconsulted on new actions to tackle late payments.

Alan Vallance, ICAEW Chief Executive, welcomed that ICAEW and other professional bodies had finally been listened to. He said: “Late payments are damaging to the economy. Paying suppliers late threatens jobs and the survival of otherwise productive businesses. Time spent chasing payments is time that is not being used by businesses to win new work and grow.”

Legislation on late payments first laid out in the Late Payment of Commercial Debt Act 1998 will be strengthened to include a 60-day cap on payment terms for large businesses paying its smaller suppliers. The government will also introduce statutory interest of 8% above the Bank of England base rate for late payments that will need to be included in all commercial contracts.

“After working closely with the Federation of Small Businesses, boards or audit committees of persistently late-paying large companies will be required to publish explanations for poor payment performance and the actions they are taking to address it,” Business Secretary Peter Kyle said.

“I know first-hand how difficult late payments can be, forcing you to decide if you can afford to keep a business running, pay employees or even buy Christmas presents for your children,” Minister for Small Business and Economic Transformation, Blair McDougall, added. “These are genuinely game changing measures that will ensure no business, no employer, no family has to endure the immense strain of being left strapped for cash they have already earnt.”

“Government has listened to ICAEW members and is taking action to improve payment culture,” said Vallance. “The new powers for the Small Business Commissioner will enable targeted and proportionate action to be taken against the small minority of persistent late payers, as well as promoting cultural change on late payments.

“It’s vital that these powers are used proportionately to tackle egregious cases of late payment and that they do not create administrative burdens or impose additional costs on the majority of companies at a time when our members are saying doing business is too expensive and too complicated.”

The measures follow the launch of the Small Business Plan last year, which also launched the Business Growth Service to increase access to finance for SMEs and entrepreneurs.

“We are on a mission to make life easier for small firms by getting money moving faster through the economy by tackling late payments,” said Small Business Commissioner Emma Jones CBE. “The measures the Government has announced today will strengthen the role of my office in taking on the worst payers alongside ensuring small businesses have a stronger voice on payment terms and late payment interest."