What the Government’s SME late payments announcement answers, and what it doesn’t

After months of anticipation, the Department for Business and Trade has finally published its response to the late payment consultation – and has since followed it up with a Bill, now before Parliament. The package is being billed as the toughest crackdown in over 25 years, and in several respects that’s not spin.

But it also leaves a number of the important questions unanswered. Here’s an honest assessment of what has been resolved, what hasn’t, and what needs to happen next.

What the announcement gets right

First things first – on the question of mandatory interest, the government has delivered something genuinely significant. The existing statutory rate of 8% above the Bank of England base rate already exists in law, but businesses can contract out of it – and large companies routinely do.

The new rules will remove that option entirely. Every commercial contract will carry mandatory statutory interest on late payment, automatically. For the many SMEs owed tens of thousands of pounds and currently receiving paltry contractual interest rates in return, that’s a real and immediate improvement.

The expansion of the Small Business Commissioner’s (SBC) powers is also a meaningful step change. It will be transformed from what was, in effect, a mediation and advocacy service, into an enforcement body with powers to investigate, adjudicate disputes outside the court system, and impose fines against large persistent offenders.

For the construction sector, the proposed ban on withholding retention payments is a serious long-term commitment, even if it is still subject to further consultation on implementation.

Clarified, but not entirely resolved

One of the key pre-consultation questions was whether the 30-day dispute window would protect small suppliers or simply give large buyers a new, standardised mechanism for delay.

The government has confirmed the 30-day deadline will be legislated – if it’s missed, the buyer owes compensation automatically. That’s good news, but it’s still unclear what happens when a dispute is raised within 30 days but is then drawn out indefinitely.

The announcement acknowledges a statutory time limit but does not define what constitutes a ‘legitimate’ dispute versus a spurious one raised purely to hold up the clock. If large buyers can routinely raise technical objections within the window and then take months to resolve them, the protection could be hollowed out in practice.

What’s more, while the fine structure is confirmed in broad terms – with penalties linked to a company’s unpaid statutory interest liability – the detailed methodology has not been published. There’s still a risk that multinationals with billions in revenue could simply absorb these fines as a cost of doing business.

What remains unclear

The enforcement credibility question has not been fully answered. The SBC currently operates with around a dozen employees – far fewer than it will need to meet its new expanded role – and while the government has promised additional funding, it hasn’t quantified exactly how much that will be. This monetary commitment will therefore be scrutinised closely.

The geographic scope of the new rules is another live issue; late payment is a devolved matter in Scotland, Wales and Northern Ireland. The government’s stated ambition is UK-wide application, but this will require negotiation and agreement with devolved administrations.

The 45-day aspiration has also become curiously vague. The original consultation proposed a legislated pathway from 60 days to 45 days after five years – a commitment that has been quietly dropped from the final announcement. Many, including the Federation of Small Businesses, have pointed out that 60 days is not prompt payment.

What happens next and what businesses should do

The government acknowledges that this is an urgent issue and has said it will legislate “as soon as Parliamentary time allows”. As expected, the King’s Speech confirmed a Bill, with the government introducing the Small Business Protections Bill into the House of Lords on 19 May. The regime is now progressing as draft legislation rather than merely promised.

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For SMEs, the broad shape of the new regime is settled enough to warrant action ahead of legislation. That includes reviewing standard contract terms now, rather than waiting for the legislation to land. If your contracts currently allow customers to substitute lower interest rates for statutory interest, it will be worthwhile considering how to phase it out in the near future.

It could also be a good time to establish or tighten invoice dispute processes – when the 30-day window becomes law, an SME’s ability to issue clean, unambiguous invoices promptly will determine how quickly the clock starts running in their favour.

Large companies that regularly pay smaller suppliers would also be well advised to audit their payment practices now too.

The honest verdict

The government’s announcement is an ambitious package promising a cultural reset in how UK businesses honour obligations to their supply chains.

The mandatory interest change alone, if properly enforced, will alter the economics of late payment for large businesses; likewise, the SBC’s transformation into a real regulator has the potential to make a real impact.

That said, the credibility of the whole regime depends on whether Parliament writes the detail tightly enough and if the SBC gets the resources to back its new powers with action.