New Small Business Protections Bill could help avoid administration

The new Department for Business and Trade legislation – called the Small Business Protections Bill – promises the toughest late payment rules in the G7, with ministers claiming it could transform cash flow for millions of small firms, freelancers and sole traders.

The Bill, introduced to Parliament on Tuesday, aims to stop large corporations from delaying payments to smaller suppliers for months at a time – a problem ministers say forces 38 UK businesses to close every day.

What the new law would change

Under the proposed reforms, big businesses would face strict new rules when dealing with smaller suppliers.

Key measures include:

• A legal maximum 60-day payment term for large firms
• Mandatory interest charges on overdue invoices
• Tougher enforcement powers for regulators
• Major fines for repeat offenders
• New protections for construction firms against withheld retention payments

The government says late payments currently cost the UK economy around £11 billion every year.

Small firms often rely heavily on steady cash flow, meaning delayed invoices can quickly create serious financial pressure.

New powers to punish late payers

The reforms would significantly strengthen the powers of the Office of the Small Business Commissioner.

Under the plans, the Commissioner would be able to:

• Investigate poor payment practices
• Settle disputes between businesses
• Publicly name persistent offenders
• Issue potentially massive financial penalties

Ministers said the largest fines for chronic late payers could run into “tens of millions” of pounds.

The Bill would also force audit committees and company boards at major firms to explain poor payment records publicly and outline how they plan to improve.

Why small businesses say it matters

For many independent businesses, unpaid invoices are more than just an administrative frustration.

Business owners often spend hours chasing overdue payments instead of focusing on growth, hiring or customers.

According to the government, delayed payments can directly affect whether businesses can:

• Pay staff wages
• Cover rent and bills
• Invest in equipment
• Expand operations
• Survive difficult trading periods

Keir Starmer described small firms as “the backbone of our economy” and said the reforms would deliver “the toughest action on late payments in a generation”.

Construction firms among biggest winners

One of the most significant proposals targets the construction industry, where suppliers are often hit by retention payments – money withheld until projects are fully completed.

The government plans to ban the practice in many cases, arguing it leaves subcontractors unfairly exposed to financial strain and disputes.

Construction groups have long argued retentions damage cash flow and increase insolvency risks for smaller contractors.

Federation of Small Businesses welcomes reforms

Federation of Small Businesses said tackling late payments could become one of the most important reforms for small business growth in years.

The group worked closely with ministers on the proposals and said giving audit committees responsibility for payment practices could help change corporate culture around supplier payments.

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Wider support for SMEs

The legislation forms part of a broader government push to support smaller firms amid ongoing economic pressures.

Other measures highlighted by ministers include:

• Business rates relief
• Apprenticeship hiring incentives
• Reduced childcare costs
• Lower energy bills
• Easier access to finance
• Cuts to red tape for hospitality and high street businesses

The Bill is due to begin its passage through the House of Lords this week.