Govt introduces landmark 60-day late-payment cap and promises to ban construction retentions

The Government has unveiled what it says are the largest set of payment reforms in over a generation. The Small Business Commissioner will be given sweeping new powers to investigate poor payment practices; to adjudicate payment disputes; and to fine the worst offenders – with fines ‘worth tens of millions’ for firms that persistently pay late or fail to comply with the new laws.

The changes include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. Business Secretary Peter Kyle said:

Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable. 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. After working closely with the Federation of Small Businesses, 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.”

At the same time, Department for Business & Trade said it proposes to ban the withholding of retention payments under the terms of construction contracts – seeking to end a decades’ old thorn in the side of the construction industry. The DBT will consult on the details of its implementation. The measure will prevent small firms losing their retention payments to insolvency or non-payment, it added.

Retentions reform a ‘landmark moment’ for specialist contractors

The retentions move was welcomed by specialist contractors. David Frise, Chief Executive of BESA, which has been seeking to end the practice for decades, said:

This is a landmark moment for our industry and a hugely significant step forward for BESA members and the wider building services engineering sector. We have been campaigning for many years to end the unfair and outdated practice of retentions, which has placed an unacceptable financial burden on specialist contractors. The government has listened to the concerns of our members and the wider industry.

He said the decision has the potential to transform cashflow, improve business resilience, and create a fairer, more sustainable supply chain. He added:

It is particularly encouraging that policymakers engaged directly with our members during the consultation process. That real-world insight has clearly helped shape a more robust and meaningful response.”

Debbie Petford, Legal and Commercial Director at BESA, added:

This consultation was a once-in-a-generation opportunity to address poor payment practices, and it is extremely positive to see the government taking decisive action. The collapse of major firms in recent years has only reinforced how vulnerable smaller contractors are within the supply chain. While there is still work to do on implementation, this is a major step towards creating a business environment where firms can thrive, not just survive.”

BESA said it understands that the implementation consultation will look at matters such as transition periods and ensuring a clear and robust definition of retentions to prevent their reintroduction in other forms. Legislation is expected to follow when parliamentary time allows, although implementation is likely to take up to two years. BESA is encouraging its members and the wider industry to continue engaging with the process to ensure the final framework delivers meaningful and lasting change.

Toughest late-payment measures in the G7

The DBT said that the late payment measures, addressing a problem costing the UK economy £11 billion every year, will be the toughest in the G7, the DBT said, building upon and strengthening legislation on late payments, first laid out in the 1998 Late Payment of Commercial Debt Act. It added that 266 businesses a week have to close because they are not paid on time.

New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.   Tina McKenzie, Policy Chair of the Federation of Small Businesses, said:

Late payments are a blight on our economy, so FSB is pleased to have worked in partnership with the Government to deliver the toughest legislation in the G7.  The new laws will finally bring a stop to big businesses using their small suppliers as sources of free credit.”

She added:

For the first time, audit committees and boards will question and challenge poor payment performance, publish it in annual reports for all to see, and put it right.  Paying in 60 days is not prompt – but strengthening that as the absolute maximum cap after years of dithering is a good step towards encouraging payments in 30 days across all supply chains.  Improving the Small Business Commissioner’s powers will also help, mandating CEOs of Britain’s poor payers to take the phone call. This is real progress, and we’ll keep working with the Government to make sure new laws are brought in as soon as possible.

Measures designed to help small businesses

The range of measures to help small businesses was heralded by Small Business Commissioner Emma Jones. She said:

We are on a mission to make life easier for small firms by getting money moving faster through the economy by tackling late payments. The measures the Government has announced today will strengthen the role of my office in taking on the worst payers alongside ensuring small businesses have a stronger voice on payment terms and late payment interest. These reforms will reduce the hours spent chasing debt allowing small businesses to focus on more productive and enjoyable growth.”

Debbie Williams, co-founder of John Williams Heating Services, said that as a family-run business that has served its community for more than 20 years, it sees first-hand the strain that late payments place on small companies. She said:

Cashflow pressures don’t just affect the balance sheet — they impact our ability to take on apprentices, invest in training and continue providing reliable service to local families.  We welcome the Government’s focus on tackling late payments, as timely and fair payment practices are essential for the stability and growth of businesses like ours.”