The government has announced a new package of measures to tackle late payments – a problem that continues to affect over half of all UK small businesses.
From 2026, large companies that fail to pay their suppliers on time could be removed from the Prompt Payment Code and lose access to public sector contracts.
Finance directors will be held personally accountable for how their firms treat suppliers, and new rules will make it more difficult for businesses to conceal poor payment practices.
It’s being described as the toughest crackdown on late payments in years, aimed squarely at improving life for the UK’s small firms and sole traders.
Why this matters
Late payment has become a structural problem for UK small businesses.
According to the Federation of Small Businesses (FSB), more than half of SMEs experience late payments regularly. In many cases, invoices remain unpaid for 60 to 90 days or more, which is well beyond the agreed-upon terms.
For a sole trader trying to manage bills, tax, and day-to-day expenses, this isn’t just an inconvenience. It can seriously restrict cashflow, lead to missed payments, and force businesses to delay investment or even turn down new work.
The government estimates that small businesses are owed over £20 billion in unpaid invoices at any given time. That’s capital locked up in someone else’s account – not yours.
If a client pays late, the law is technically on your side.
The Late Payment of Commercial Debts (Interest) Act 1998 gives small businesses the right to charge interest on overdue invoices – 8% above the Bank of England base rate – plus a fixed sum for debt recovery.
You don’t have to mention it in your contract for the rules to apply, but including it in your terms helps reinforce your position.
What’s changing in reality
The new rules were announced as part of the government’s Small Business Plan in July 2025. They include:
- Firms that repeatedly pay late may be removed from the Prompt Payment Code
- Late payers could also be barred from bidding for government contracts
- Finance directors will be personally responsible for signing off payment reports
- 30-day payment terms will become standard for public sector suppliers
- A new Payment and Cashflow Review Board will monitor compliance and progress
Several major business groups, including the FSB, CBI and Enterprise Nation, have backed the plan.
What the government says
Launching the changes, Enterprise Minister Kevin Hollinrake said:
Small businesses should be paid on time – it’s as simple as that. This new plan will make late payments unacceptable in today’s business culture.
The government says the reforms are designed to level the playing field, reduce unnecessary financial stress for small businesses, and improve payment discipline among large organisations.
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What it means for you
If you’re a sole trader, this won’t magically fix late payments. However, it could shift the balance slightly.
Large companies will know they’re under scrutiny. If they want to stay in the Prompt Payment Code or continue winning public sector work, they’ll need to clean up their processes and report their payment performance properly.
That gives you a bit more leverage, especially if you’re dealing with larger clients or agencies. But the chasing, the admin, and the risk still sit with you – for now.
What you can do now
If late payment is something you’ve struggled with, here are a few ways to stay in control:
- Agree on payment terms before any work begins. Don’t assume it’s 30 days – confirm it.
- Include the due date on your invoice so it’s clear and traceable.
- Mention your right to charge interest. Under UK law, you can charge 8% above base rate on late payments, plus fixed compensation.
- Chase overdue invoices quickly — ideally the day after payment is due.
- Use deposits or staggered payments for larger or longer projects.
You don’t need to be aggressive – just clear, confident, and consistent.
Industry reaction
Freelancer insurance specialist and ByteStart partner Qdos welcomed the announcement but stressed the importance of action, not just policy:
The imbalance in power between freelancers and large businesses has gone unaddressed for far too long. We welcome this shift in tone from government, but enforcement will be key.
— Seb Maley, CEO of Qdos
The key challenge will be ensuring that large firms face consequences for paying late—and that small businesses feel confident in challenging them.
Promising words, but the burden remains with small firms
These reforms could help chip away at the late payment culture that’s held back small businesses for years. However, the responsibility to protect your income still rests with you – in your contracts, invoicing, and follow-ups.
Getting paid on time shouldn’t be something you have to fight for. But while the system catches up, doing the basics well can make all the difference.
