The Small Business Plan was revealed yesterday (30 July), with the government saying the law will be "the toughest on late payments in the G7".
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It will also introduce maximum payment terms of 60 days, before a reduction after an introductory period to 45 days to give "firms certainty they’ll be paid on time".
Under the new proposals, audit committees will also be legally required to scrutinise payment practices at board level. This will place greater pressure on large firms to show they’re treating small suppliers fairly, backed by mandatory interest charges for those who pay late.
'Significant steps forward'
The Chartered Institute of Building (CIOB) welcomed the government's new plan to support SMEs.
Research figures quoted by the institute suggest small businesses across multiple industries are owed more than £26bn in late payments.
In 2022, more than half of all the invoices sent to construction firms were paid late, with data suggesting many major contractors were paying 20% of invoices late.
"We have long called for stronger protections for SMEs, which form the backbone of the construction industry," said David Barnes, CIOB’s head of policy and public affairs.
"Late payments have plagued the sector for too long, causing significant cashflow challenges, hindering growth, and in many cases, forcing businesses to shut up shop. Over the past decade, construction firms have accounted for approximately 18% of total insolvencies in England and Wales, whilst accounting for less than 15% of companies.
"The introduction of tougher payment legislation, greater enforcement powers for the Small Business Commissioner, and mandatory board-level scrutiny of payment practices are significant steps forward. These changes will help create a more stable, fair, and resilient construction supply chain."
