(qlmbusinessnews.com . Fri 1st Aug, 2025) London, UK —
Business Secretary Announces Historic Overhaul of Invoice Payment Regulations
Firms that continually delay paying their suppliers could be hit with fines as part of new government initiatives aimed at protecting smaller businesses.
Revealed on Thursday, the draft proposals suggest capping invoice terms at a maximum of two months, with plans to reduce this to 45 days within five years.
Business Secretary Jonathan Reynolds introduced the plans, highlighting a study that attributes the closure of thousands of businesses each year to overdue payments.
While the proposals have been welcomed by opposition parties, they argue that businesses are currently struggling due to increases in National Insurance announced in the budget by the Labour government.
According to the government, these changes would represent the most significant overhaul of payment regulations since the introduction in the 1990s of the ability for companies to levy interest on unpaid invoices.
Research conducted by the government suggests that late payments impact approximately 1.5 million businesses, with £26 billion outstanding at any one time.
Smaller businesses, with their limited cash reserves and the burdensome task of chasing late payments, disproportionately suffer from these delays.
Reynolds stated that overdue payments are the “primary concern” he hears from small businesses.
The proposed regulations, open for a 12-week consultation period, would empower the small business commissioner – a role established in 2017 by the Conservatives – to impose fines on large companies that are late in settling invoices. These new measures would apply to businesses with over 250 employees, which are already required to disclose their average payment durations biannually.
The proposed policy indicates that companies might face fines if they fail to promptly pay at least three-quarters of invoices within a six-month period.
Fines would amount to twice the sum of late-payment interest owed to suppliers, with the rate currently at 8% above the Bank of England base rate.
While the government has yet to schedule when it will enact the necessary legislation, it has stated it will do so as parliamentary schedules permit.
The government is also considering reducing the maximum allowed payment term for invoices. Currently, the expectation is that invoices are settled within 60 days, but some firms negotiate longer terms. This can pressure smaller suppliers into agreeing to extended payment durations to secure contracts.
The Department for Business asserted that eliminating the possibility of negotiating payment terms beyond 60 days would correct the “power imbalance between small and large businesses.”
The plan includes a provision to potentially lower this payment term to 45 days after five years, aimed at enhancing business cash flow.
Conservative shadow business secretary Andrew Griffith welcomed the measures against late payments but critiqued the Labour government for what he termed a “full-on strangulation of employment red tape.” He specifically condemned the budget's increase in employers' National Insurance, labelling it a “£25bn jobs tax.”
The Liberal Democrats also voiced concerns over the National Insurance hike, suggesting it severely impacted smaller companies. Business spokesperson Sarah Olney called for a “concrete plan” from the government to support businesses, which should include addressing business rates and the issue of high energy costs.
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