Time to pay-up: why the government is right to crack-down on late payments by large companies
By Sarah Stone
Published in Mace Magazine - May 2026
“New legislation in the King’s Speech to clamp down on large companies paying small suppliers late is long overdue, says Sarah Stone”
Imagine the situation: you are a shopkeeper and a customer runs into your shop desperately asking for an item you sell, and which they really need. Only when they get to the till and you ask them to pay they tell you that they don’t pay for things at the point of sale – it’s their policy to do so in a few months’ time.
But only if you send them a bill in an exact format that suits them and via an electronic portal that requires a degree to access. What would you do? You’d laugh probably, and then say no.
And if they walked out without paying? Well, if that happened in real life the police would be called pretty quickly. And yet that is effectively what large companies have been able to do to smaller businesses – entirely legally – for years.
As any business owner will tell you it’s commonplace to have a client ring you up saying they really need your support. You give them a price. They send you written confirmation and promise the Purchase Order will follow. The supplier delivers the order, submits the invoice, and then waits.
The vast majority of the time delay isn’t caused by an unwillingness on the part of the larger firm to pay – they do genuinely mean to give you the money. It’s just they also have labyrinthine financial systems and processes which can successfully deter even the hardiest adventurer.
Until now, there has been nothing in law to prevent it and many companies, my own included, are understandably reluctant to make a fuss for fear it will jeopardise important relationships.
“Businesses don’t run on fresh air. And while most companies do eventually pay, the loss of that cash flow in the meantime can be devastating for smaller firms”
As the UK’s Small Business Commissioner, Emma Jones, explained to me when I interviewed her for a recent episode of my Let’s Talk Social Value podcast, around 38 businesses close every day as a direct result of unpaid invoices.
With SME leaders spending an estimated 86 hours a year chasing money they are owed, late payment is costing UK companies £11 billion every year. That’s money we really need flowing around our economy.
This is why the Government is bringing in legislation introducing a 60-day maximum payment term. It means every firm with more than 50 employees that engages smaller suppliers will now be legally required to meet those terms.
Designed to protect small businesses from predatory payment delays, these sweeping reforms also enforce mandatory interest on late invoices. A statutory ceiling will apply to business-to-business contracts where a large purchaser is contracting with a smaller supplier. This cap prohibits companies from agreeing to terms that extend past 60 days, with the government outlining a long-term goal to reduce this limit further to 45 days.
In addition, a 30-day statutory time limit will be introduced for large companies to raise disputes. Failure to dispute an invoice within this timeframe means the business must pay the invoice along with compensation.
As somebody who runs a small business, I know this legislation will really make a difference. Time spent chasing payment is time not spent growing the business, supporting the team, or delivering work.
It’s not just financial penalties the legislation is introducing, but also additional administrative oversight and scrutiny. That means the systems and processes which have allowed payments to drift or stall will need to change.
It’s also long overdue.
For anyone who says that it’s going to cause more red tape and bureaucracy, I would reply that this is a problem of large businesses’ own making.
Multiple governments and administrations have implemented voluntary prompt payment codes and encouraged good practice initiatives for years but, without enforcement, progress was uneven and often superficial.
Fair and prompt payment isn’t just about cash flow. It’s about people. Every business, whether it’s large or small, is made up of human beings who need to pay their bills. When cash flows around the economy better, we all benefit.
Paying suppliers on time strengthens relationships. It improves reputation. It makes your business one that others want to work with. And it brings stability not just to one organisation, but to the wider network around it.
It’s also important to recognise that many late payments are not driven by deliberate bad intent. As Emma Jones reflected in our discussion, they are often the result of inefficient systems, poor internal processes, or overly complex onboarding requirements that simply don’t work in practice.
But regardless of the cause, the impact is the same.
Small businesses put time, energy, and expertise into delivering work they are proud of – only to face delays in being paid for it. What should be a positive commercial relationship becomes strained. And in some cases, it becomes unsustainable.
Legislation alone won’t fix every one of those underlying issues.
But it does create a clearer standard. And crucially, it gives the Small Business Commissioner stronger powers to enforce that standard – combining the “carrot” of recognising good practice with the “stick” of acting against those who fall short.
For us, the direction of travel is positive.
It won’t solve everything. But it will bring greater consistency, more accountability, and much-needed stability for small businesses across the country.
And after years of waiting, that is a welcome step forward.
Sarah Stone is director and founder of Samtaler (samtaler.co.uk). She is a leading UK expert in social value for public sector procurement.
