It’s time to pay up!

The UK Government has introduced the most stringent package of measures on late payments in over a quarter of a century, with reforms designed to address long-standing challenges faced by small businesses, particularly those operating within the construction supply chain.

Announced on 24 March 2026, the new regulatory framework positions the UK as possessing the toughest anti-late payment laws within the G7, reinforcing the government’s commitment to supporting small and medium-sized enterprises (SMEs) against delayed settlements from larger commercial clients.

Central to these reforms is the strengthening of the remit of the Small Business Commissioner, who will now hold robust enforcement powers to investigate payment practices, resolve payment disputes, and impose significant financial penalties—potentially reaching tens of millions of pounds—on persistent late payers. These measures address an issue that costs the national economy approximately £11 billion annually and compels thousands of small businesses, including tradespeople and subcontractors, to close due to cash flow crises arising from slow or withheld payments.

Of particular significance for the construction sector is the proposal to prohibit the practice of retention payment withholding in construction contracts. The government will undertake consultation to determine an appropriate mechanism for this ban, which is expected to prevent the risk of retentions being lost to insolvency or non-payment—issues that have frequently undermined the viability of specialist subcontractors and smaller suppliers.

Additionally, the new legislation introduces a 60-day maximum on payment terms for invoices issued by small suppliers to large firms, alongside the introduction of mandatory interest on late payments at a statutory rate of 8% above the Bank of England base rate. This mandatory interest, coupled with compensation entitlements, is designed to further incentivize timely payment and reduce the administrative burden associated with debt recovery, enabling small businesses to prioritise growth and service delivery.

Large businesses with poor payment records will face transparency requirements, mandating their boards or audit committees to disclose, in annual reports, the reasons for poor performance and outline corrective measures. This initiative—backed by the Federation of Small Businesses—seeks to exert boardroom-level pressure on payment practices and encourages cultural change across supply chains.

The government’s intervention forms part of its wider Small Business Plan, which also includes a £4 billion finance package and rollout of the Business Growth Service, to improve SME resilience and access to capital. These prompt payment reforms present robust opportunities for subcontractors, suppliers, and main contractors to benefit from strengthened cash flow protections, reduced credit risk, and a more transparent and efficient contracting environment, ultimately enhancing certainty and sustainability for companies seeking to enter or grow within the UK construction market.

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