What the Small Business Protections (Late Payments) Bill means for UK businesses

Learn more about the proposed legislation and how you can prepare

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Earlier this year, the UK government unveiled proposals for the Small Business Protections (Late Payments) Bill, a significant reform of payment practices. 

Designed to tackle the issue of late payments, the bill aims to ensure accountability of businesses that are persistently paying late – especially larger organisations. 

If this bill is passed, it could transform how businesses need to assess and monitor credit risk.

Chapter 1

What changes are proposed?

  1. A hard cap of 60 days on payment terms (with limited exemptions)

  2. Mandatory interest on late payments at 8% above the Bank of England base rate

  3. Stricter dispute timelines of 30 days, with penalties if they are challenged after this

  4. Greater transparency, requiring boards to improve payment practices if they are subpar

  5. Enhanced powers for the Small Business Commissioner (SBC) to investigate and fine persistent late payers

  6. Proposed ban on retention payments in construction (subject to consultation)

Chapter 1

Why does this matter?

Late payments have a huge impact on the UK economy, costing around £11bn every single year. Over a quarter of businesses are directly affected by late payments, with the average amount owed at £17,000. And it’s not just cashflow that’s impacted. SMEs spend 133 million staff hours each year chasing invoices. 

As a result, 14,000 businesses close annually due to late payments, which is equivalent to 38 closures every day.  

Not only do late payments threaten survival for small businesses in the UK, but they stretch already thin resources thinner. These proposals aim to make it significantly harder for businesses to ignore their owed payments, putting SMEs in a better position to thrive.

Do late payments affect credit score?

Your credit score can change for various reasons, and late payments is one of them. Missing or delaying payments may lower your score and signal risk to potential lenders and suppliers.

To help protect your credit and keep your options open, always aim to pay on time. Consistent payments improve your chances of accessing better funding options and working with reputable businesses on more favourable terms.

Chapter 1

What it means for SMEs

The bill is a clear step forward for smaller businesses in the UK as payment terms become much easier to enforce. Businesses are deterred from paying late due to the high costs involved if they do, and disputes can be resolved without costly court action. 

However, it’s important to note that not all late payments happen maliciously. 36% of businesses surveyed by the Department for Business and Trade reported paying their suppliers late due to administrative errors, 31% to disputed invoices, and 23% to technical issues. Additionally, companies of all sizes can suffer from financial distress that makes payment difficult. 

This means that while this legislation may stop businesses from intentionally paying late, SMEs still need to have robust processes in place to assess customer risk prior to onboarding and to continue monitoring across the entire lifecycle.  

Chapter 1

What it means for larger businesses

Many large businesses operate with extended payment practices. The introduction of this legislation would effectively end this practice, so these businesses need to be prepared. 

No longer will there be a power imbalance between large businesses and SMEs. Those who are paying late will see their reputation on the line, as they will have to publicly explain why this has happened and how they are mitigating it. 

Could this have a wider impact? Potentially. Larger businesses would no longer be able to use small businesses as a source of “informal financing” by avoiding payments, leading to tighter internal cashflow and changes to payment prioritisation.

Chapter 1

Why credit monitoring becomes more important

It would be easy to assume that regulation means you can focus less on credit risk. However, this isn’t the case. Weaker businesses will find themselves slipping into difficulty quicker and the gap between reliable payers and high-risk customers will widen. 

While it may not mean more late payments, it may expose businesses in financial difficulty quicker. If you have the tools to see when a business is experiencing financial distress before you work with them or fail to pay, you are in a much stronger position. 

A company credit report offers insights into exactly how a business is performing and whether they are in financial difficulty. This data can help you make smarter decisions on which companies you work with as it enables you to:

  1. Assess customers before offering credit or services

  2. Identify warning signs of financial distress

  3. Understand payment behaviour trends

  4. Set appropriate credit limits

Finance Agreement data can add another layer of risk assessment. With Creditsafe’s Finance Performance Indicators, you can clearly see the likelihood of a company defaulting on payments within the next 90 days within their credit report. 

Using these insights, you can avoid working with businesses that are struggling to pay their debts or have a history of poor payment behaviour. Once onboarded, you can keep an eye on their performance to act quickly at the first signs of financial distress. 

Combine your credit reports with Company Monitoring, which automates the process by sending you notifications to you via email when significant changes happen within a business, and you can move from being reactive to proactive.

Make smarter lending decisions

Discover Commercial Credit Data Sharing (CCDS) and how access to finance agreement data enables more accurate lending decisions and stronger affordability assessments.

Chapter 1

How can you prepare?

Regardless of the size of your business, you should use this as an opportunity to strengthen your credit process:

  • Align payment terms with the upcoming regulations
  • Use credit reports to assess new customers to decide their risk level
  • Check if they have a history of missed payments
  • Continue to monitor your customers throughout their lifecycle to keep a eye on their financial health and payment behaviour
  • Act on signs of risk before they turn into missed payments

The new legislation could be a turning point for businesses that have been taken advantage of by late payments. It also offers a great opportunity to develop stronger preventative strategies using credit insights. Now is the time to put the tools in place ahead of the legislation being passed.

Confident decisions in an instant

Businesses with access to rich and reliable data are best equipped to make informed decisions. Creditsafe company credit reports provide a comprehensive view of the organisations you work with, giving you the insights you need to move forward with confidence.

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