Say Goodbye to Late Payments: Big Firms Face Fines Under New Regulations

Large companies that consistently delay payments to their suppliers could soon face hefty fines as part of new government proposals aimed at assisting small businesses. Announced by Business Secretary Jonathan Reynolds, these draft regulations seek to enforce stricter payment practices, limiting invoice terms to a maximum of two months and proposing a reduction to 45 days within the next five years.

Recent government research highlights late payments as a significant issue, impacting 1.5 million businesses and accumulating a staggering £26 billion owed at any time. The government noted that late payments are the “number one issue” raised by small firms, who often operate with limited cash reserves and face challenges in pursuing delayed payments.

Under these new plans, a small business commissioner—a role established by the Conservatives in 2017—would be bestowed with the authority to impose fines on companies that fail to settle a quarter of their invoices on time, as indicated within a six-month reporting period. These fines could be up to double the amount owed in late-payment interest, currently pegged at 8% plus the Bank of England’s base rate.

Although no specific timeline has been communicated for implementing these changes, the government is committed to introducing the necessary legislation as soon as parliamentary time allows. Furthermore, the government proposes removing the option for longer payment terms that larger firms have historically imposed, which has been crucial for securing contracts but detrimental to smaller suppliers. Critics of the Labour government, such as Conservative shadow business secretary Andrew Griffith, acknowledge this initiative but warn of the overwhelming burden of other financial pressures impacting businesses, including a National Insurance rise, which has been labeled a £25 billion jobs tax. Opponents argue that a comprehensive strategy is needed to support companies, including adjustments to business rates and relief from high energy costs.