Labour Party Crackdown on Late Payments
“The Toughest Crackdown on Late Payments in a Generation”
The Labour Party has unveiled what it calls the “toughest crackdown on late payments in a generation” as part of its ‘Plan for Change’.
In a press release yesterday, Labour stated its proposed reforms will specifically target business‑to‑business transactions where large firms often delay payment of invoices to smaller suppliers.
Under the proposed reforms, the Small Business Commissioner will gain new enforcement powers. These will include the ability to carry out spot‑checks, invoice verification requirements within a certain timeframe, new maximum payment terms of 60 days and potentially, multi‑million‑pound fines for repeat late payers.
In addition, there will be interest charges on late payments and a requirement that audit committees at large companies formally scrutinise supplier payment practices.
As a whole, Labour frames this crackdown as being part of its Plan for Change, which includes a finance package to assist start‑ups and SMEs.
The Problem of Late Payment: Why Reform is Needed
The late payment of invoices is one of the most common challenges facing small businesses. Labour estimates it costs the UK economy £11 billion annually, and contributes to the closure of around 38 businesses per day.
Research suggests the average small business loses more than £22,000 per year to overdue payments, many of which can be attributed to large companies and corporations.
For debt collection solicitors like us, the reality is stark: late payments are not merely an inconvenience, they are a genuine threat to cash flow, investment, and survival. Small businesses trapped in protracted invoice disputes often find themselves in financial trouble, creating a domino effect of insolvencies.
Reaction To Proposed Late Payment Reforms
Industry and SME bodies such as the Federation of Small Businesses and Small Business Britain have welcomed the proposals as bold and long overdue. The construction sector—where SME insolvencies account for a disproportionate share of failures—has particularly praised the enforcement measures.
However, commentators across the spectrum have expressed scepticism. In The Spectator, a contributor argued the crackdown may be “pointless” if Labour does not simultaneously tackle broader economic issues. They argue that firms face crippling challenges from higher taxes, rising employer national insurance, and excessive red tape, making payment reform a narrow fix rather than a systemic solution. In their view, without alleviating these broader burdens, reforms risk becoming another populist gesture with limited real benefit to struggling businesses.
Among our clients—usually owner‑led SMEs and regional suppliers—two themes emerge:
- Late payment of invoices is a chronic problem: chasing unpaid invoices consumes time and resources, delays expansion, and often pushes firms into overdraft, affecting creditworthiness.
- But there is widespread frustration that broader pressures—from taxes, NI hikes, and regulation—are creating an environment in which even prompt payers struggle to stay afloat.
While most welcome the crackdown on late payments, they also note it does not address the adverse impact of Labour’s broader economic policy—especially the increase in employer NI and regulatory burdens that many see as stifling business confidence and investment.
Crucially, the scope and enforcement of the reforms remain to be seen. Questions remain about:
- how the Small Business Commissioner will operate in practice;
- whether spot checks and fines will be applied consistently;
- how payment metrics reporting in annual reports will translate into better behaviour; and
- whether audit committees will actually hold boards to account, rather than treating disclosures as a box‑ticking exercise.
How Will The Late Payment Reforms Impact The Debt Recovery Sector
In the debt recovery sector, we anticipate:
- A potential increase in recoveries once maximum payment periods become binding and interest penalties apply.
- More claims for statutory interest and compensation—particularly under the statutory regime for late payments (8% + Bank of England base rate).
- Greater reliance on enforcement powers, including fines for non‑compliant clients or debtors.
- A shift toward pre‑emptive engagement strategies: advising clients to negotiate genuine 30‑day terms, document disputes quickly, and escalate unresolved delays earlier.
Conclusion: Late Payment Reform is Long Overdue
Reforming the culture of late payment is long overdue. The Labour crackdown on late payment and tougher rules on late payment of invoices should strengthen SMEs’ ability to get paid promptly and reduce insolvencies linked to cashflow failure.
Yet the announcement must be placed in context: most small business clients are feeling squeezed by high taxes, recent increases in employer national insurance, and growing regulatory burdens. Until those broader issues are addressed, payment reforms cannot alone guarantee improved business confidence or growth.
Ultimately, the effectiveness of these measures will rest on clarity, enforcement, and business buy‑in. We will continue advising firms on how to position themselves best under the new regime—and use these powers to recover outstanding debts efficiently.