Getting Paid on Time: What the UK’s Late Payment Crackdown Means for Your SME

By Gavyn Huzzey, Solicitor (England & Wales)

Late payments aren’t just a nuisance for small and medium businesses; they can be a threat to survival. Recent data shows they cost the UK economy £11 billion a year, tragically forcing 38 organisations to close their doors every single day.

The UK Government has recently announced a major legislative shake-up to end this "scourge." Described as the toughest crackdown in the G7, these reforms will fundamentally change how commercial contracts are written and enforced.

As a legal consultancy specialising in commercial contract drafting, audit, and negotiation services, we’ve broken down exactly what this means for your business and how you can prepare for the changes.

The Big Changes: What’s Coming?

The proposed legislation introduces several game-changing measures designed to shift the power balance back toward SMEs:

• The 60-Day Hard Cap: A new mandatory limit will prevent large firms from pushing payment terms beyond 60 days when dealing with smaller suppliers.

  
  

• Mandatory 8% Interest: While the right to claim interest has existed since 1998, it’s rarely used by small businesses. The new rules will make statutory interest (8% above the Bank of England base rate) mandatory in commercial contracts subject to limited exceptions.

  
  

• A "Beefed-Up" Commissioner: The Small Business Commissioner is getting sharper teeth. They will have the power to investigate poor payment practices, adjudicate disputes, and issue large fines to persistent offenders.

  
  

• Public "Name and Shame": Large companies will have to publicly explain late payments at the board level.

  
  

• Construction Sector Shift: The government plans to ban the withholding of "retention payments" which is a move that could significantly stabilise cash flow for tradespeople and contractors.

  
  

Actionable Guidance: How to Protect Your SME from Late Payment

You don't need to wait for the legislation to pass to start protecting your cash flow. Here are three steps you can take today:

1. Audit Your Existing Contracts

Review your current terms and conditions. If your contracts are silent on interest or if you’ve been "bullied" into 90-day terms, we recommend reaching out to your contract counterparties to seek to negotiate more balanced terms.

2. Tighten Your Dispute Process

The new rules will likely include a statutory deadline for customers to raise invoice disputes. To benefit from this, you need a robust internal process to flag, document, and resolve disputes the moment they arise.

3. Know Your Worth (and Your Interest)

Start calculating what you are owed. Under the new rules, if a large firm owes you £10,000 and pays 60 days late, they could owe you an additional £293.15 in interest and compensation. Understanding these figures gives you significant leverage in negotiations.

How We Can Help

At Clause Two, we help SMEs navigate the complexities of commercial contract law without the "legalese." If you're in need of expert support to move a large client onto fairer terms, we are here to help you level the playing field. Use our calculator to get an instant fixed-fee quote and let us handle the negotiation for you.

Clause Two is a legal consultancy, not a law firm. We focus on the provision of non-reserved commercial contract review, drafting, and negotiation services. You can learn more about us on our short FAQ page.