Good news as government cracks down on late payments
Late payments are costing the UK economy an estimated £11bn a year. As a firm that works with hundreds of small businesses, we know from experience that they bear the brunt, often having to agree to extended payment terms of 90+ days just to win or keep work. When big firms don’t pay on time, the smaller supplier is left with little legal or practical recourse.
12th August 2025
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Amy Dedman See profile
Despite slow incoming payments, most small businesses still pay their own suppliers quickly — often within 30 days or even upfront. This creates a mismatch between cash in and cash out, which can cause serious strain on cash flow. Many are forced into short-term borrowing to bridge the gap, and government figures suggest 38 businesses a day close as a result of these pressures.
Maximum payment terms – New rules will cap payment terms at 60 days, and this will reduce further to 45 days in time. This sets a clear legal limit and should help speed up payments.
Dispute deadlines – If an invoice is not disputed within 30 days, it must be paid in full. This stops clients from delaying payments with late-stage disputes.
Construction contracts – A potential ban on retentions would prevent clients from holding back payment for long periods, giving suppliers more predictable income.
Late payment interest – The current rate of 8% above base will become mandatory, making it costlier for debtors to delay.
Penalties for repeat offenders – Businesses with a track record of late payments may face new financial penalties.
Transparency – Large companies will have to publish their payment performance in their annual reports, making poor payers more visible to suppliers and stakeholders.
Quicker, fairer payment terms mean more stable cash flow and less reliance on costly emergency finance. If you work in construction, the removal of retentions could make a significant difference to working capital. Increased transparency and penalties should deter persistent late payment behaviour, creating a healthier payment culture overall.
These changes are positive, but they don’t remove other challenges. Over the past few years, smaller businesses have faced rising costs from higher National Insurance rates, increased minimum wage, soaring energy bills, and heavier business rates. While the legislation will help with payment speed, it’s only one part of the financial pressure picture.
At Old Mill, we help businesses with everything from compliance to strategic tax planning, get in touch.