Late payment consultation outcome: time to pay up

[edit] Background

On 31 July 2025 the Prime Minister launched Backing your business: our plan for small and medium-sized businesses with a commitment to tackle late payments. The late payments consultation ran from 31 of July 2025 to 23 of October 2025 and on 24 March, 2026 the government published it outcome Consultation outcome Late payment consultation: time to pay up – government response.

Late payment is described as a serious drag on the UK economy, costing an estimated £11 billion a year, contributing to the closure of around 14,000 businesses annually, and affecting over 1.5 million firms. Businesses are collectively owed about £26 billion in late payments at any one time, with many spending substantial staff time chasing debts and in some cases refusing work with customers known for poor payment practices.

[edit] Government response in brief

Following the consultation the government has set out a package of legislative measures to be introduced when Parliamentary time allows. Key proposals are to significantly strengthen the powers of the Small Business Commissioner (SBC), enabling it to investigate suspected poor payment practices, adjudicate disputes out of court, and issue fines, including large penalties for persistent offenders. Wider reforms will require board-level scrutiny and public explanation of poor payment performance in large companies, impose maximum 60‑day payment terms with only limited exemptions, set statutory deadlines for disputing invoices with compensation where these are missed, and mandate contractual rights to statutory interest on late payments.

Specific action is also planned for the construction sector, with a proposed ban on the deduction and withholding of retention payments in construction contracts, subject to further consultation on implementation. The measures are intended to operate together as a strong set of legal and commercial incentives, alongside cultural change driven by the government and the SBC, building on initiatives such as the Fair Payment Code. The government plans to increase funding for the SBC and allow it to recover the costs of investigations and adjudications, and intends to introduce the reforms across the UK, working with devolved governments under the Late Payment Common Framework to maintain regulatory alignment.

[edit] Electrical Contractors’ Association reacts

Also on 24 March the Electrical Contractors’ Association, responded to the outcome saying "following over a decade of ECA’s influence and input, today the UK Government commits to the strongest comprehensive set of reforms to UK payment in over a century."

The reforms are designed to fix problems which cost the UK £11 billion a year and ease cost of living for SMEs through correcting late payment. These measures are the first package of significant changes in 25 years reflecting solutions ECA has been leading on with the Cabinet Office and the Department for Business and Trade for over a decade.

ECA were joined by Unite the Union in October, calling on Government for reform of late payments ECA welcomes today’s announcement of reforms which cover:

• The Small Business Commissioner being given the enforcement powers to fine large firms who don’t pay, report or comply on time.
• Removing the ability of large payers of small payees to contract out of a mandatory 60-day cap on payment terms.
• Removing the ability to contract out of the statutory charge of 8% interest on late payment.
• Boards or audit committees of persistently late-paying large companies will be required to publish explanations for poor payment performance and the actions they are taking to address it.
• Banning retention clauses

For decades ECA led reform in this area with countless consistent campaigns. Whilst we expressed a preference, first and foremost we wholly supported reform of whatever nature and look forward to ensuring the ban on retentions is created and shaped to be as robust and comprehensive as possible.

Rob Driscoll, Director of Legal & Policy at ECA, said:

“These announcements represent a shift in the way Government views supply chain SMEs. The strength of the supply chain is as strong as its weakest link. These measures will supercharge the supply chain. Industry must come together and work to ensure there can be no back-door loopholes to get round the ban on retentions."

Government has also launched the Business Growth Service and increased access to finance for SMEs and entrepreneurs with a massive £4 billion finance boost. Government is really showing strength and investment in an SME growth agenda, a much-needed boost as we industry bounces into yet another economic uncertainty due to global conflict.

This article is based on the executive summary of Late payment consultation: time to pay up – government response and the ECA article "ECA leads generational reform on late payment!" which appears on the ECA news and blog site, both dated 24 March 2025.