The UK's £11 Billion Problem: 50,000 Businesses Dead, and a Government Finally Getting Angry

The UK's relationship with late payment enforcement can best be described as "strongly worded letter, sent by carrier pigeon."

Since 1998, the Late Payment of Commercial Debts (Interest) Act has theoretically entitled businesses to charge interest at 8% above the Bank of England base rate on overdue invoices. In practice, almost nobody does. Small suppliers fear that charging interest will anger large clients and cost them the relationship — which is a bit like refusing to call the fire brigade because you're worried about water damage.

In 2017, the Payment Practices and Performance Regulations required large companies (those meeting at least two of: £36M+ turnover, £18M+ balance sheet, 250+ employees) to publicly report their payment practices. This produced a trove of data confirming what everyone already knew: large companies pay late, frequently, and without meaningful consequence.

The Prompt Payment Code, a voluntary initiative, asked companies to pledge to pay suppliers within 60 days. Signatories included major corporations who then continued paying late. The code had all the enforcement power of a New Year's resolution.

The Small Business Commissioner, created to champion small business interests, could investigate complaints and "name and shame" offenders. Named and shamed companies included Holland & Barrett, BUPA, and Zurich Insurance. Their response to being named and shamed was, by all evidence, to feel neither named nor shamed.

The direct cost to small businesses goes beyond the headline £11 billion figure. The Federation of Small Businesses calculated that late payments specifically cost small businesses over £680 million per year in additional charges — overdraft fees, emergency borrowing, missed supplier discounts, and administrative time spent chasing invoices instead of building businesses.

There's also the human cost. A 2024 FSB survey found that late payments contributed to:

• Mental health deterioration among business owners
• Difficulty paying employees on time, creating a cascade of harm
• Reduced investment in growth, innovation, and hiring
• Relationship breakdown as financial stress overwhelms personal lives

Fifty thousand businesses. Behind each one, a person who took a risk, built something, and watched it collapse — not because of market forces or bad decisions, but because a larger company decided to sit on their money for an extra 60 days.

In July 2025, the UK government announced what it called the "toughest crackdown on late payments in 25 years." The details suggest they mean it this time. Probably.

The New Framework

Financial Penalties: For the first time, persistent late payers face actual fines — potentially worth millions of pounds. The Small Business Commissioner gains the power to levy significant financial penalties, not just write stern letters.

Spot Checks: The Commissioner can now conduct unannounced audits of company payment practices. No more self-reporting that conveniently makes everything look rosy.

30-Day Invoice Verification: Companies will be required to verify invoices within 30 days. The old trick of "we need to review this" as a stalling tactic for months becomes legally actionable.

Maximum Payment Terms: The legal maximum drops from the current de facto 120-day reality to 60 days, with plans to reduce to 45 days. Contracts imposing longer terms become unenforceable.

Board-Level Accountability: Here's where it gets interesting. Audit committees will be legally required to scrutinize payment practices. Directors face personal accountability — payment performance becomes a governance issue, not just an accounts payable one.

Mandatory Interest Charges: Late payment interest becomes automatic rather than optional. The existing 8% above base rate entitlement will be enforced, not just suggested.

The Fair Payment Code

The voluntary Prompt Payment Code is being replaced by the Fair Payment Code, with actual standards and tiered recognition:

• Gold: 95% of invoices paid within 30 days — the gold standard (literally)
• Silver: 95% of invoices paid within 60 days, including 95% of small business invoices within 30 days
• Bronze: 95% of invoices paid within 60 days

Companies that fail to meet even Bronze standards face exclusion from the code — and increasingly, exclusion from public sector contracts.

Public Sector Enforcement

For government contracts over £5 million, suppliers can now be excluded for poor payment practices. Given that public procurement represents roughly £300 billion annually, this creates a genuine financial incentive that "naming and shaming" never could.

The irony is that UK suppliers already have substantial legal rights. They just don't exercise them.

Late Payment of Commercial Debts (Interest) Act 1998:

• Interest at 8% above Bank of England base rate on overdue payments
• £40-£100 fixed compensation per late invoice (depending on debt size)
• These rights are statutory — they exist even if the contract doesn't mention them

Payment Practices and Performance Regulations 2017:

• Large companies must report: average time to pay, percentage paid within 30 days, and percentage paid beyond 60 days
• Reports are publicly available on GOV.UK
• Companies face criminal prosecution for failing to report (though enforcement has been minimal)

The problem has never been the law. It's been the willingness to enforce it.

The Small Business Commissioner has published findings against companies including:

Holland & Barrett — The health food retailer, apparently less concerned about the health of its supplier relationships than the vitamins on its shelves.

BUPA — The healthcare company. Their tagline is "Helping you find healthy." Their suppliers might suggest starting with healthy payment terms.

Zurich Insurance — An insurance company. Their business is literally assessing and managing risk. The risk of paying suppliers on time, apparently, was one they chose not to take.

The impact of naming and shaming alone? Limited. Companies absorb the temporary reputational hit and continue business as usual. Which is precisely why the 2025 reforms add financial penalties to the equation.

Immediate Actions:

• Review all contracts for payment terms exceeding 60 days — these will become unenforceable
• Begin tracking payment performance of all major clients systematically
• Register with the Small Business Commissioner's office to receive updates on new enforcement powers
• Start exercising statutory interest rights on overdue invoices — the more suppliers who do this, the faster it becomes normalized

When the New Framework Takes Effect:

• Report persistent late payers to the Commissioner — with financial penalties now available, complaints carry real weight
• Verify whether your clients are Fair Payment Code signatories and at what tier
• Check public procurement suppliers against payment performance data
• Build late payment interest into your financial projections — it's your money, not a bonus

Escalation Path:

1. Invoice clearly with payment terms and statutory interest notice
2. First reminder at 7 days overdue with interest accrual notice
3. Formal demand at 30 days with fixed compensation claim
4. Report to Small Business Commissioner at 60 days
5. Engage B2B debt collection specialist
6. Legal proceedings with statutory interest and costs

For 25 years, the UK has known about its late payment crisis and responded with varying degrees of concern and approximately zero degrees of enforcement. The 2025 reforms — if properly implemented — represent a genuine shift from polite suggestions to financial consequences.

But laws are only as good as their enforcement. France didn't solve its late payment problem by writing legislation. It solved it by issuing €30 million in fines and publishing every company's name on a government website.

The UK government has announced the hammer. The question is whether it will actually swing it.

Fifty thousand businesses a year are waiting to find out.

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