Government announces crackdown on late payments to contractors

The government is also consulting on its proposal to ban the withholding of retention payments under the terms of construction contracts in order to prevent small firms losing retentions to insolvency or non-payment.

Late payments cost the UK economy £11bn every year and 38 businesses on average shut their doors every day because they are not paid on time, according to the Department for Business and Trade (DBT).

The DBT said the new measures will be “the toughest in the G7” and the largest set of reforms in over 25 years.

Firms that persistently pay late or fail to comply with the new laws could face fines worth tens of millions of pounds.

The government said that boards or audit committees of those firms will be required to publish explanations for poor payment performance and the actions they are taking to address it.

Under the new measures, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest.

“This is a more interventionist government, backing the British business community with landmark reforms that will also help to control inflation and make our economy more resilient from global shocks,” the DBT said.

The new measures strengthen current legislation on late payments, which was first laid out in the Late Payment of Commercial Debts (Interest) Act 1998.

Business and trade secretary Peter Kyle said it is “simply unacceptable” that businesses are forced to shut down because they have not been paid.

“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier,” he added.

Blair McDougall, minister for small business and economic transformation, said: “These are genuinely game-changing measures that will ensure no business, no employer, no family has to endure the immense strain of being left strapped for cash they have already earnt.”

Small business commissioner Emma Jones said the measures will strengthen the role of her office in “taking on the worst payers alongside ensuring small businesses have a stronger voice on payment terms and late payment interest”.