Late payment remains arguably the single biggest threat to the survival and growth of UK Small and Medium-sized Enterprises (SMEs).
For a small business, a 90-day wait for a large invoice can be the difference between meeting payroll and insolvency. Cash flow is the lifeblood of any successful company, and when the circulatory system is clogged by habitual late payers—often large, well-resourced corporations—the economic consequences are severe, contributing directly to the subdued business confidence reported across the UK.
Recognising this long-standing injustice, the government and the Small Business Commissioner are advancing serious reforms designed to require greater payment transparency and introduce tougher penalties for offenders. This shift is not just about nudges and warnings; it’s about weaponizing data and public scrutiny to enforce better payment discipline across the economy.
The New Rulebook: A Focus on Transparency and Shame
The key elements of this regulatory push create an unmissable compliance burden for large companies while offering substantial protection and leverage for their SME suppliers:
- Mandatory Payment Performance Reporting: Large businesses are now facing stringent requirements to track and publicly report their payment performance metrics. This mandatory reporting goes beyond simple averages and is expected to detail the proportion of invoices paid late and the typical payment cycles to their suppliers. This makes payment behaviour a matter of public record and commercial reputation.
- Public “Naming and Shaming” Powers: For businesses that prove to be habitual offenders, the Small Business Commissioner is being given strengthened powers of public condemnation. This “naming and shaming” is a direct attempt to link poor payment practices to commercial reputation, creating a powerful disincentive for large clients to exploit their smaller suppliers.
- Strengthened Supplier Protection: These reforms are designed to bolster the legal position of the supplier. This includes enhanced requirements for clarity and transparency in contract terms, particularly concerning extensions and modifications. Furthermore, streamlined dispute resolution mechanisms are being introduced to give small firms a faster, more affordable route to reclaiming owed funds without resorting to lengthy court battles.
This new framework fundamentally alters the balance of power. It forces large debtors to consider the reputational and regulatory cost of late payment, while giving SMEs a stronger, legally backed position when negotiating and enforcing payment terms.
Business Actions for November: Auditing Your Cycle
Whether you are a debtor or a creditor, your business needs to take proactive steps this month to align with these impending standards. For SME creditors, this means being ready to leverage the new transparency rules. For large debtors, it means ensuring compliance before public enforcement begins.
- Audit Payables and Receivables: Conduct a thorough internal review to measure your average payment days (both what you pay and what you are owed). Track late-payment trends rigorously and identify persistent offenders in your receivable portfolio, as well as any areas of slow payment in your own purchase ledger.
- Review Supplier Contracts: Ensure all your current supplier contracts explicitly detail payment terms, dispute resolution processes, and fair terms related to contract extensions. Transparency must be visible in the legal language of your agreements.
- Prepare Disclosure Documentation: If your company falls under the definition of a large business, you must immediately set up internal systems to accurately track and prepare all mandatory payment metric disclosures. Compliance failure here will result in immediate public scrutiny.
Securing your cash flow in this new environment requires a proactive, strategic approach. You must be able to audit your payment behaviour, benchmark it against new regulatory expectations, and optimize your internal processes before new penalties and public naming commences. This investment in compliance today is a shield against regulatory risk and a powerful engine for improving liquidity tomorrow.
Give us a call to arrange a “Payment Cycle Audit” and protect your business from new compliance risks.