The UK Government has announced sweeping reforms to tackle late payments to small businesses, unveiling what it calls the most significant legislative changes in 25 years. The reforms – part of its newly launched Small Business Plan – aim to address a problem that costs the UK economy an estimated £11 billion annually and leads to the closure of 38 businesses every day.

Firms that consistently delay payments to their suppliers could soon face fines running into the millions, under new enforcement powers to be granted to the Small Business Commissioner. The Commissioner will be able to conduct spot checks, enforce a mandatory 30-day invoice verification period, and impose interest charges on overdue payments.

To ensure these reforms are implemented across the country, UK ministers say they will work in close collaboration with the Scottish Government. The issue of late payments cuts across devolved competencies, meaning Holyrood’s approval will be required via a legislative consent motion before UK-wide implementation can proceed.

Scottish Secretary Ian Murray confirmed the collaborative approach, stating: “As someone who ran a number of small businesses before entering politics, I know these enterprises are the backbone of our economy, and often the heart of local communities the length and breadth of Scotland. It is imperative that businesses in Scotland also benefit from these reforms.”

A Scottish Government spokesperson said it welcomes efforts to tackle late payments and will work with the UK Government on developing the measures. “Late payments are a particular challenge for small and medium-sized enterprises,” the spokesperson said, adding that small firms in Scotland already benefit from support including an estimated £733 million in non-domestic rates relief and the Small Business Bonus Scheme.

According to the Federation of Small Businesses (FSB) Scotland, two-thirds of small firms in Scotland experienced late payment issues in the last quarter, with nearly four in ten saying the problem is worsening. FSB Scotland chair Guy Hinks welcomed the new measures, saying: “Late payment is a blight on thousands of small businesses across Scotland. We’re pleased to see ministers have listened to what FSB has been saying and are taking firm action to tackle the problem.”

What Key Measures are in the Reforms?

The proposed reforms are the centrepiece of the Small Business Plan, launched as part of the UK Government’s broader Plan for Change strategy. The initiative pledges to provide small and medium-sized enterprises (SMEs) with the tools, funding, and regulatory support needed to thrive.

Key measures include:

• Mandatory payment terms capped at 60 days, reducing to 45 days over time

• Stronger enforcement through audit committee scrutiny and fines for persistent offenders

• Increased financial backing, including a new £4 billion funding package, with £1 billion reserved for 69,000 Start-Up Loans and associated mentoring

• A £3 billion boost to the British Business Bank, enabling more small business lending through its ENABLE programme

The package of reforms is billed as the toughest in the G7 when it comes to late payments.

Prime Minister Sir Keir Starmer described the issue as one that “holds Britain back,” saying:
“Too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses. It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.”

Business and Trade Secretary Jonathan Reynolds echoed the sentiment, calling the plan “the first in over a decade” and a clear signal of the Government’s intent to “unleash the full potential” of the UK’s entrepreneurial ecosystem.

Backing Small Business Growth

The plan also tackles longstanding barriers around access to finance, promising to make funding more accessible and affordable. The £4 billion finance package includes:

• £1 billion for startup loans and mentorship

• £3 billion to enhance the British Business Bank’s lending capacity

• Support for newer or smaller firms through improved loan terms and reduced interest rates

Officials argue that accelerating SME growth by just 1% annually could add £320 billion to the UK economy by 2030.

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Other pro-growth measures in the plan include:

• High Street Rental Auctions to revive vacant premises

• Red tape cuts in licensing to boost hospitality and the arts

• A revamped Board of Trade to support small business exports

• The Business Growth Service to streamline support access

Tina McKenzie, policy chair at the FSB, said the reforms show the Government is “taking the side of small businesses in the great growth challenge ahead.”

She added: “I’m pleased that FSB and the Government have been able to work in lockstep on the bold and ambitious measures needed to tackle the scourge of late payment.”