Ministers announce the introduction of legislation to tackle late payments and protect small businesses.
Small businesses will no longer be left chasing money they are already owed, as ministers today [Tuesday 19 May] introduce landmark legislation to end the scourge of late payments and back millions of sole traders, freelancers, and family firms across the country.
The Small Business Protections Bill (formally known as the Commercial Payments Bill) delivers the toughest crackdown on late payments in a generation – putting a clear duty on large firms to pay smaller suppliers on time and giving small businesses the certainty they need to keep investing, supporting jobs and growing their communities.
It comes as the Prime Minister and Business Secretary are expected to welcome small business owners to Downing Street to mark what leaders have called a “historic moment for small firms”.
Late payments close 38 businesses every single day because they are not paid on time. That’s the equivalent of 266 a week, and well over a thousand in any given month. For business owners, the impact is immediate and personal – forcing them to spend hours chasing invoices instead of running their businesses and putting jobs and livelihoods at risk.
The Bill fundamentally changes how businesses pay each other, putting an end to excessive delays and unfair practices that hit small firms hardest, through sweeping new reforms.
Iain McIlwee, FIS Chief Executive said:
“This is a historic and very good day for all in construction who have suffered from Late Payment and Retentions Abuse. It isn’t the end, but my strong hope and belief it is the beginning of the end and an opportunity for the sector to grasp and use to find a better way to do business and remove the frictions associated with the dash for cash and behaviours that have undermined relationships and constrained opportunity to evolve. I’d like to thank colleagues from within the Department and across the sector who have tirelessly championed better and brought us to this moment”.
Prime Minister Keir Starmer said:
“Small businesses are the backbone of our economy – run by people who take risks, create jobs and keep communities going. This government is firmly on their side.
Too many small business owners are spending hours chasing money they are owed and when payments don’t come through, the cost is personal. It’s about whether you can pay your staff, keep the lights on, or invest in your future.
Today 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.”
Reforms include a clear 60-day cap on payment terms on all large firms paying smaller suppliers, mandatory interest on late payments, set at 8% above the Bank of England base rate, and a ban on the practice of withholding retention payments under construction contracts.
On top of this, the Small Business Commissioner is getting major new powers to investigate poor payment practices, adjudicate disputes, and fine the worst offenders – with potential fines that could be worth tens of millions for persistently late payers.
The Office of the Small Business Commissioner has already recovered more money for small firms in the last year than in the previous four years combined.
By improving cashflow through supply chains, the Bill supports productivity, growth and keeps our small businesses afloat, by giving them the certainty they need to invest and grow.
Vitally too for construction, the Bill starts to set down how abolition of retention will be enacted.
Business Secretary Peter Kyle said:
Costing the UK economy £11 billion every single 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.
The Bill builds upon and strengthens legislation first laid out in the 1998 Late Payment of Commercial Debt Act, over 25 years ago, to give us the strongest legal framework on late payments in the G7. It will also require changes to the
Housing Grants, Construction and Regeneration Act 1996 (commonly referred to as the Construction Act.
To find out more about the Small Business Protections Bill Click Here.
The Bill is due to be introduced in the House of Lords on Tuesday 19 May.