A tough crackdown on late payments within the construction industry and other key sectors in the UK is coming, with greater powers given to smaller contractors in the supply chain who are ‘persistently’ left out of pocket.
New legislation, branded the “toughest late payment laws in the G7”, is designed to tip the balance of unfair payment in construction to work more in the favour of small and medium-sized (SME) businesses, trades, and family-run firms, who “for too long, the odds have been stacked against”.
The Department for Business & Trade is also proposing legislative reform to “ban cash retentions in construction contracts”.
Greater powers will be given to the Small Business Commissioner (SBC) to impose fines worth millions of pounds against major contractors and big firms that fail to pay the supply chain on time.
Random spot checks will also be introduced, with the SBC able to enforce a 30-day invoice verification period to speed up resolutions to disputes.
Audit committees will be required by law to scrutinise payment practices at board level, demanding proof large firms are playing fair and with mandatory interest charges for late payers.
The new laws will also introduce maximum payment terms of 60 days, reducing to 45 days.
Late payment of invoices and long payment terms can be a major barrier to growth, especially for SMEs, as time is wasted chasing payment from clients while cash flow problems build up and impact a company’s viability.
Experts estimate late payments in general cost the UK £11 billion a year and contribute to around 38 businesses going bust every day. SMEs employ roughly 60 per cent of the workforce in the UK and generate around £2.8 trillion in revenue.
“Late payments are one of the biggest barriers to small business growth —causing cash flow problems that stop firms from scaling up and investing in their future,” a spokesperson for the Department for Business and Trade said. “Every day, hardworking businesses close their doors because they aren’t paid on time.”
The construction industry experienced the highest number of insolvencies of any other sector in the UK in the past year, with smaller, subcontractor firms still outpacing the number of larger companies disappearing from the landscape.
Of the five UK sectors with the most insolvencies in the 12 months to May this year, construction saw 4,056 cases, accounting for 17 per cent of all insolvencies in the country. This is an 18.5 per cent increase from April 2025 (325) and 7 per cent increase from May 2024 (360).
Smaller, specialist firms continue to be overrepresented in the months preceding June this year, with 190 failing out of 385 in May, 202 failing out of 325 in April, 202 out of 376 in March, 201 out of 368 in February, 170 out of 305 in January, 173 out of 293 in December last year, 185 out of 320 in November, and so on. This trend is consistent with similar results reported last year, while construction firms in the UK have gone under at the highest rate in a decade
David Barnes, CIOB’s head of policy and public affairs, said: “With the majority of the UK’s sector being made up of SMEs, we welcome the government’s focus on supporting smaller businesses through this new plan – especially the steps to address the issue of late payments.
“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.
“Research figures suggest small businesses across multiple industries are owed more than £26 billion 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 per cent of invoices late.”
As part of the reforms, £4 billion in financial support is available for small firms, including £1 billion for new businesses, and 69,000 start-up loans.
“From builders and electricians to freelance designers and manufacturers—too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses,” said prime minister Keir Starmer.
“It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.”
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