Government has backed up commitments to tackling the scourge of late payments and retention in the construction sector by seeking views on a package of proposed legislative measures. The package of new measures is claimed to be the most significant attempt to address late, long and disputed business to business (B2B) payments in over 25 years.
The consultation recognises that late payment impacts 1.5 billion businesses and ultimately costs the UK economy almost £11 billion per year and closes down 38 UK businesses every day. Commenting on the launch of this consultation on 30th July, the Prime Minister, Kier Starmer stated:
“From builders and electricians to freelance designers and manufacturers—too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses.
“It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.
“Through our Small Business Plan, we’re not only tackling the scourge of late payments once and for all, but we’re giving small business owners the backing and stability they need for their business to thrive, driving growth across the country through our Plan for Change.”
The consultation proposes the following package of legislative measures:
| Policy | Description |
| 1. Audit committees and board-level scrutiny of large company payment practices | In September 2024, the government reaffirmed commitments to legislate on audit committees and other board level responsibilities to improve payment practices. The government believes further positive change could be achieved by increasing discussion and scrutiny of large companies’ payment practices at board level.We would welcome views on how government could best achieve this in the future with proportionate regulatory burden. For example:
A. Ensuring audit committees or company boards, where companies have them, provide commentary and make recommendations regarding payment performance to company directors before the data is submitted to government and included in the director’s report. This would include data provided as part of the Reporting on Payment Practices and Performance Regulations 2017, and any interest on late payment liabilities. B. Ensuring the Small Business Commissioner writes to audit committees and company boards, where companies have them, when i) undertaking payment performance reporting assurance and ii) when investigating any other matter relating to a companies’ payment practices. We would welcome views on these ideas, including the likely positive effects, costs, or any unintended negative consequences. We would also welcome other additional ideas to encourage greater discussion of payment practices at board level. |
| 2. Maximum payment terms | The policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, removing the exemption that allows businesses to agree to payment terms longer than 60 days if considered not ‘grossly unfair’. This will effectively limit payment terms between UK businesses to 60 days. Subject to further consultation, this policy may subsequently reduce this limit from 60 days to 45 days after 5 years. |
| 3. A deadline for disputing invoices | The policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, introducing a 30-day invoice verification period. Businesses who wish to raise a dispute will need to do so within 30 days of receiving an invoice, otherwise they will be liable to pay the invoice in full within the agreed payment terms, alongside any statutory interest or debt recovery costs if the invoice is paid late. |
| 4. Mandatory statutory interest | The policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, making the statutory interest rate payable on late payments mandatory. This will remove the ability to negotiate compensation rates lower than the statutory rate. This will increase existing financial incentives to pay invoices on time. |
| 5. Additional reporting on statutory interest | The policy will amend The Reporting on Payment Practices and Performance Regulations 2017 to include additional reporting requirements around statutory interest liabilities. This will further increase transparency around poor B2B payment behaviour and informs other policies that aim to improve the utilisation and payment of statutory interest. |
| 6. Financial penalties for persistent late payers | The policy will introduce new legislation, which gives the SBC powers to issue financial to businesses who persistently pay their suppliers late. The policy will use payment behaviour data submitted by businesses under The Reporting on Payment Practices and Performance Regulations (2017) to identify and issue financial penalties to persistently late-paying businesses, with penalties based on businesses’ unpaid statutory interest liability. |
| 7. Additional powers for the SBC, including assurance of payment reporting data | The policy will amend The Enterprise Act 2016 to give additional powers to the SBC. The additional powers would improve the SBC’s ability to conduct investigations into poor B2B payment behaviour (beyond its current complaints scheme), allow it to provide legally binding arbitration in disputes, and impose financial penalties or make arbitration awards after an investigation or arbitration process.The policy will also enable the SBC to investigate the accuracy of the payment reporting data that large businesses provide under The Reporting on Payment Practices and Performance Regulations 2017. This will improve the quality of reporting data and support the reporting regulations original objectives of improving transparency around B2B payment behaviour. |
| 8. Use of retention clauses in construction contracts | The policy will amend Part 2 of the Housing Grants, Construction and Regeneration Act (1996), to either prohibit the use of retentions or to introduce requirements to protect retention funds deducted and withheld from insolvency and late or non-payment. |
Commenting on the consultation FIS CEO Iain McIlwee stated.
“This is a very welcome piece of work to get our teeth into over the summer, but on the surface is a very good set of measures and encouragingly consistent with the asks in our Blueprint for Better Construction. Greater scrutiny and tougher sanctions are needed. Point 8 really jumps off the page when we think about reform in the context of construction. Mismanagement of Retention remains a contentious and concerning problem that undermines trust, liquidity and with it the wider improvements in culture, investment and productivity that we need to see in construction.
FIS, along with a chorus of associations across construction, has long advocated for reform, but we have seen little action, just roadmaps and bluster. Tackling this in the Construction Act is the only way we will realistically see change. Our position remains that the Act should be amended to ensure retentions are automatically released at a defined date. They should not require additional applications from contractors or relate to dates that are not explicit to the completion of their works and events beyond their control. Additionally, the UK should seek to replicate the recent developments in New Zealand where it has been legislated that retentions are held in trust. When Collateral Warranties are implemented, retentions should be immediately and automatically returned.”
The consultation will run from 31 July 2025 to 23 October 2025. We are encouraging businesses to have their say. You can respond directly, but please feed in your views to FIS so that they can incorporate your views into their collective response. Please email any comments to iainmcilwee@thefis.org