The government has today announced new powers for the Small Business Commissioner (SBC) to combat late payments
The new late payment measures include the ability for the SBC to adjudicate payment disputes, particularly between small- and large-businesses.
The SBC will also have the ability to issue multi-million-pound fines to big businesses, especially when repeat offenders are involved.
Late payments impact the economy as a whole
Up to £11bn is lost in the UK economy every year due to poor payment practices, with around 38 businesses – especially SMEs – having to shut down every day because they are not paid on time.
This impact has not gone unnoticed by the construction industry, which still sees one of the highest insolvency rates of any industry.
The measures laid out today are some of the toughest in the G7 and build on late payment legislation from the 1998 Late Payment of Commercial Debt Act. Now, a 60-day cap is being imposed on payment terms for all large firms paying small suppliers, and a mandatory interest on late payments is being introduced at 8% above the Bank of England base rate.
And withholding retention payments is set to be banned in construction contracts, preventing small firms from losing retentions when companies enter insolvency.
Business secretary, Peter Kyle, said: “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.
“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”
Dr David Crosthwaite, chief economist at BCIS, said: “Late payment has long been a pressure point in construction supply chains, particularly for SMEs and specialist contractors, where delays can place significant strain on cashflow.
“The government’s proposed reforms represent a positive step towards improving payment discipline.
“Stronger enforcement powers, a 60-day cap on payment terms and mandatory interest on late payments would help improve the flow of money through supply chains and provide greater certainty for smaller firms.
“However, insolvency risk in construction is typically driven by a combination of factors.
“Alongside cashflow pressures, firms continue to operate with tight margins, cost volatility and exposure to project-specific risks, as well as higher employment and business costs, including recent increases in employer-related costs, which are adding to overall cost pressures.
“In this context, late payment can act as a trigger in an already fragile financial position.
“Proposals to address retention practices are particularly relevant, given the risk to firms when upstream contractors become insolvent.
“However, retentions have traditionally played a role in managing defects liability and quality assurance, so any changes will need to ensure that appropriate mechanisms remain in place to maintain delivery standards.
“There may also be scope to strengthen payment security further through mechanisms such as project bank accounts, which can support more reliable and timely distribution of funds across supply chains.
“The reforms come at a time when firms are still managing ongoing cost pressures and economic uncertainty.
“Improving payment practices should support greater financial resilience across the sector, although the overall impact will depend on how these measures interact with wider market conditions.”
Insolvency remains high in the construction industry
In September, the Insolvency Service released stats highlighting the continued climb of insolvency rates in construction companies, and that 15.2% of all insolvencies in England and Wales in July are construction companies, a climb of 2.5% from June.
In the 12 months to July 2025, 3,973 construction companies entered insolvency, a decrease of 9.5% annually, but a marked increase on 23.5% on 2019’s figures, meaning since COVID, insolvencies have skyrocketed and maintained a high level.
Analysis by EY Parthenon noted that there are many factors to consider both within and outside the UK, writing: “Unpredictable tariff policy, rising employment costs and shifting regulatory frameworks are reshaping corporate behaviour. As the second half of the year begins, sectors exposed to discretionary spending and policy-sensitive industries like healthcare, retail and energy also face mounting pressure.
“When everything feels like a risk, it becomes harder to know which threats matter most. Companies can’t react to every event, but the speed of change means that a ‘wait and see’ approach isn’t an effective long-term strategy either. Businesses need a measured, scenario-based approach that balances agility with strategic clarity to face ongoing uncertainty.”
