Labour's new anti-late payment package ‘a contractor confidence boost’

A new anti-late payment package to help small firms is being widely welcomed, despite an expert at chasing down invoices telling ContractorUK that it is inadequate.

Hailed by Labour as they unveiled it on Wednesday July 30th as the “toughest crackdown on late payments in a generation,” the package has four key parts.

First, an exemption allowing payment terms to exceed 60 days if not “grossly unfair” will be axed, replaced by a cap of 60 days, ahead of plans to reduce it to 45 days.

‘Liable, in full, after a new 30-day invoice dispute deadline, is one of four new measures’

Second, a new deadline for disputing invoices will be imposed, making end-clients who don’t object within 30 days “liable” to pay the invoiced amount “in full”.

Third, the statutory interest rate payable on late payments (8% + the BoE base rate) will become mandatory.

Fourth, a range of new measures, to be enforced by the Small Business Commissioner, will be introduced, including penalties for persistent late payers.

ContractorUK has invited Emma Jones, the Small Business Commissioner (SBC), to comment.

‘Late payment consultation is open to companies without other employees’

The four key parts of the anti-late payment package are not being introduced now but instead are open to consultation.

Acknowledging ‘companies without other employees’ like PSC contractors as potential respondents, the consultation asks 54 questions.

The consultation is open for responses until October 23rd 2025 on the website of the Department for Business & Trade.

‘Labour now taking the problem of getting paid on time seriously’

However, a government response to the consultation, “Late payments: tackling poor payment practices,” won’t be available until Thursday, January 15th 2026 -- at the earliest.

Nonetheless, the anti-late payment package shows a “clear statement of intent” from Labour, which is ‘taking the problem of getting paid on time seriously’, says IPSE.

The Association of Independent Professionals and the Self-Employed (IPSE) suggested the “bold” package to hit late payers was contractor-friendly.

‘Contractor confidence boost’

“[It] has the potential to markedly improve payment practices, giving contractors the confidence that their time and work will be respected,” IPSE’s Josh Toovey told ContractorUK.

“For years, IPSE has called for 30-day terms to be the norm.

"Because that’s what truly reflects the fast-paced nature and financial pressures that define modern contracting.”

‘New anti-late payment measures for SMEs could reduce emergency borrowing needs’

Purbeck Insurance Services says once they become law, the anti-late payment measures will give SMEs “the protection they deserve.”

Managing director Todd Davison said the package for small and medium-sized enterprises (SMEs) should help “level the playing field”.

“[And it should also] reduce the need for emergency borrowing…[while allowing] SMEs to focus on growth, rather than survival.

“We urge the government to implement these reforms swiftly and ensure robust enforcement,” he said.

‘Backing your business: our plan for small and medium size businesses’

According to Purbeck, 77% of SMEs are owed money by late-paying customers, and 60% say late payment harms their operation.

Among micro-businesses, the insurer’s research further shows that the average unpaid invoice in 2025 stands at £8,441.

The government produced its own figures, in both the consultation and a day later in “Backing your business: our plan for small and medium size businesses.”

The first SME-dedicated plan since Labour’s July 2024 election win, the 63-page document ambitiously claims that the four-part package will “end” the scourge of late payment.

‘Late payment now shutting 38 businesses every day’

Both the plan and consultation state that late payments cost the UK economy £11billion a year, and shut “38 businesses every day.”

“This [anti-late payment package] will be the most significant legislation to tackle late payments in over 25 years,” continues the plan.

“And [it] will give the UK the strongest legal framework on late payments in the G7.”

‘Tinkering around the Edges, not Fixing the Fundamentals’

On page 9, Labour lists other moves underway to help SMEs, such as a vow to cut regulation’s admin costs by 25%.

It outlines the five moves under the title “Fixing the Fundamentals.”

Adam Home, who chases down unpaid invoices for a living, says that for the anti-late payment package alone, the title ought to be “Tinkering around the Edges.”

“Unfortunately for contractors, much of this package appears to be more tinkering around the edges of the existing Small Business Commissioner (SBC) late payment scheme.

“And that has been nothing but a damp squib since its inception.

“More generally, though, with this package, is it Groundhog Day again?" he said. "To us, talk of ‘significant package of reforms in a generation’ begs this question.”

‘Stronger powers to the Small Business Commissioner (SBC)’

Quoting the government’s wording, Home says he’s not once heard an unpaid SME say to him, “If only the ‘biggest firms who persistently pay late’ got sanctioned more.”

Managing director of a debt collection specialist, Safe Collections, Home said: “Nonetheless, that looks like the showpiece of this legislation as part of giving stronger powers to the SBC.

“And the government will require all large businesses to include payment reporting in their annual reports.

“Because, of course, annual reports, along with fines that are never actually issued, will definitely ‘end the scourge of late payment’ once and for all! Won’t they!?”

'69,000 Start-Up Loans’

Pressed by ContractorUK about what the government should instead do, Mr Home said he wasn’t against the plan containing the anti-late payment quarter.

“We welcome the ‘Backing your business plan…’ announcing a £4bn finance boost, including 69,000 Start-Up Loans.

“But to my team and me, who settle unpaid invoices for contractors, it looks like these latest promises won't be the panacea to late payment that small businesses are crying out for.

“There’s no significant strengthening of the existing late payment legislation that applies to companies, large and small, that has been around for 27 years.

“And there’s no mention of giving SMEs, the directors of which the government finally appears to be addressing, the legal right to enforce their own payment terms.”

‘Overdue payments may result from unclear invoice processes’

Following the unveiling of the anti-late payment package, a law firm specialising in debt recovery identified “payment terms” as one of five must-haves on a contractor invoice.

“Some overdue payments aren’t about bad clients. They’re about unclear processes,” said the firm, Lovetts.

“[As well as payment terms] do your invoices clearly state payment due date; bank details…late fees or interest [and fifth], ‘next steps’ if payment isn’t made?”

‘New 60-day backstop for payment terms, falling to 45 days soon’

Fred Hicks, IPSE’s policy director, said: “While celebrating what should actually be a new 'backstop' for payment terms [of 60 days, reducing to 45 days pending consultation], freelancers can and should be trying to set payment schedules that suit them.

“[Although] they can be creative with that, [it’s] not always possible, ultimately, if clients are too rigid in how they do things…[or] you [just] need the money.

“In that sense, the new measures [from Labour to tackle late payment] are also there to bring super slow payers up to speed, with others who have gotten their act together”.

‘A difference to small company payment practices’

Gareth Thomas MP, the minister for services, small business and exports, was asked in a TV interview whether he believes Labour’s anti-late payment package will “make a difference” to small companies.

Choosing his words carefully, Mr Thomas said: “I believe it will.”

The minister added that the package would “potentially” increase significant fines on companies that persistently pay late.