Late payments have long been a thorn in the side of UK businesses – and for those in the construction sector, they can be the difference between thriving and closing the doors for good. Now, the government is stepping in with the most ambitious reforms in decades, promising to tackle late payments head-on and give small businesses the fair treatment they deserve.
With new legislation on the horizon, this could be a turning point for an issue that has plagued our industry for years. But what exactly will it involve and will it be enough? Keep reading to find out more.
Why late payments hit construction hard
Late payment is not a minor inconvenience – it’s a systemic issue that’s costing the UK economy billions. Across all sectors, small businesses are owed an estimated £20 billion in outstanding invoices, and for construction firms, the situation is especially dire. Despite agreed payment terms, the average construction company waits 107 days to be paid.
The consequences can be severe:
- Damaged reputation when firms can’t finish projects or meet quality expectations.
- Cash flow crises leading to corner-cutting and compromised standards.
- Loss of skilled employees due to financial instability.
- Supply chain disruption that impacts multiple businesses down the line.
- Stalled growth or, in too many cases, liquidation.
Beyond the financial hit, there’s a significant human cost. A 2019 survey by the Electrical Contractors’ Association (ECA) and the Building Engineering Services Association (BESA), in association with 25 other construction trade bodies, found that 9 out of 10 construction bosses experience mental health issues caused by late payment – from stress and insomnia to depression and, tragically, even suicidal thoughts.
The launch of the ECA’s new 2025 Construction/FM: Payment Mental Health Survey (with results pending) is a stark reminder that this is not a historic problem – it’s a live and urgent issue demanding fresh attention.
Tougher rules, greater transparency
The government’s new proposals aim to fundamentally change how late payments are managed. Key elements include:
- Introducing maximum payment terms of 60 days (reducing to 45 days within five years), giving firms greater certainty they’ll be paid on time.
- Expanding the powers of the Small Business Commissioner to conduct spot checks, fine the biggest firms that persistently pay late, and enforce a 30-day invoice verification period to speed up dispute resolution.
- Requiring audit committees to scrutinise payment practices at board level, placing greater pressure on large firms to treat small suppliers fairly, with mandatory interest charges for those who miss deadlines.
Another option being considered is introducing requirements on the use of retention payments in the construction sector – including the possibility of a ban on the withholding of cash retentions.
Prime Minister, Keir Starmer, commented:
“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.”
What’s next?
The Department for Business and Trade has launched a consultation on this issue, which will run until 23rd October. They are seeking views from businesses, trade representatives, and other organisations or individuals who are interested parties to the proposals. Find out more and have your say here.
Final thoughts
Late payment has been an entrenched problem in UK construction for decades, but this new legislative push could finally help shift the culture towards fair, prompt payment.
Whether it succeeds will depend firstly on how it is progressed through Parliament and then on how robustly it’s enforced – whether businesses, big and small, embrace it as a chance to build trust and stability into the supply chain.
What do you think? Will the government’s crackdown make a real difference? Or will the industry still be fighting the same battles in five years’ time? Share your views with us on Facebook or LinkedIn.
14.08.2025
Feature image: Freepik
