The “bold new plan” has been labelled by the UK government as “the most comprehensive support package in a generation”.

The new laws are set to give stronger powers to the Small Business Commissioner to empower them to wield fines, worth potentially millions of pounds, against the biggest firms who persistently choose to pay their suppliers late.

The Small Business Commissioner will be given new powers to carry out spot checks and enforce a 30-day invoice verification period to speed up resolutions to disputes. The upcoming legislation will also introduce maximum payment terms of 60 days, reducing to 45 days, giving firms certainty they’ll be paid on time.

Audit committees, under the proposals, will also be legally required to scrutinise payment practices at board level, placing greater pressure on large firms to show they’re treating small suppliers fairly backed by mandatory interest charges for those who pay late.

Prime Minister Keir Starmer said: “From builders and electricians to freelance designers and manufacturers—too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses.

“It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.

“Through our Small Business Plan, we’re not only tackling the scourge of late payments once and for all, but we’re giving small business owners the backing and stability they need for their business to thrive, driving growth across the country through our Plan for Change.”

David Barnes, CIOB’s head of policy and public affairs, said: “We have long called for stronger protections for SMEs, which form the backbone of the construction industry. 

“With the majority of the UK’s sector being made up of SMEs, we welcome the government’s focus on supporting smaller businesses through this new plan – especially the steps to address the issue of late payments. 

“Late payments have plagued the sector for too long, causing significant cashflow challenges, hindering growth, and in many cases, forcing businesses to shut up shop. Over the past decade, construction firms have accounted for approximately 18 per cent of total insolvencies in England and Wales, whilst accounting for less than 15 per cent of companies. 

“Research figures suggest small businesses across multiple industries are owed more than £26 billion in late payments. In 2022, more than half of all the invoices sent to construction firms were paid late, with data suggesting many major contractors were paying 20 per cent of invoices late. 

“The introduction of tougher payment legislation, greater enforcement powers for the Small Business Commissioner, and mandatory board-level scrutiny of payment practices are significant steps forward. These changes will help create a more stable, fair, and resilient construction supply chain. 

“We’re ready to continue working with government and industry partners to ensure the successful implementation of these measures, and to continue championing the needs of SMEs across the construction sector.”