Rob Rees, Divisional Director at Markel Direct, the specialist insurer of small businesses, provides an overview of what is being proposed, and how businesses can tackle late payments in the meantime.
Late payments have been a long-standing issue in the UK economy, particularly impacting small businesses and the self-employed. In fact, late payments are believed to be responsible for 50,000 business closures and an estimated cost of £684m each year to SMEs, according to the Department for Business & Trade, November 2023.
To help tackle this issue, the Department for Business and Trade have sought feedback on legislative proposals aimed at combating poor payment practices by large businesses.
What is the late payments consultation about?
The UK government launched the late payment consultation in July 2025 to address widespread delays in business-to-business payments. The consultation period is the formal stage before legislation is drafted or introduced to Parliament, with the aim of gathering evidence, opinions, and feedback from key stakeholders impacted by the issue.
This particular consultation sought views from affected stakeholders on proposed new laws to:
Introduce maximum payment terms (proposed at 60 days, with potential to shorten to 45 days in future).
Require disputes over invoices to be raised within 30 days or be deemed accepted.
Enforce statutory interest (Bank of England base rate + 8%) and compensation for late payments.
Increase transparency through mandatory reporting of payment performance in large companies’ annual reports.
Give the Small Business Commissioner new enforcement powers, including fines, spot-checks, and arbitration.
Reform construction retention clauses to ensure withheld funds are safeguarded or eliminated.
What is outlined in the proposal will primarily impact SMEs in a positive manner, as the main objectives are to improve cash flow, reduce the time needed to chase invoices and protect them from the knock-on effect caused by late payments from large companies.
The proposal also aims to hold larger companies more accountable, by introducing fines, stricter regulations and mandated board-level scrutiny of payment practices. These could potentially be enforced by the Small Business Commissioner if new powers are granted.
In the meantime, here are seven tips to help you protect your finances from late payments as an SME:
- Research new clients and their credit history
- Consider asking for a deposit or staged payments
- Ensure contracts are clear from the outset
- Have a system in place for chasing late payments
- Speak to your insurer to see if they can help
- Reach out to a professional mediator or Small Business Commissioner
- When all else fails, consider taking legal action.
