A former small business commissioner has warned that the government's flagship attempt to tackle late payment culture could end in a "car crash" without careful drafting and rigorous enforcement.
Philip King, who served as interim small business commissioner during the pandemic, said previous efforts failed largely because they were never enforced. He noted that thousands of firms already break existing payment rules, yet none have faced prosecution.
The warning comes as a major overhaul of commercial payment rules reaches the House of Lords. The package is described as the most significant shake-up in more than 25 years.
For small business owners, the reforms promise long-overdue relief. Large companies will be required to pay smaller suppliers within 60 days, interest will automatically accrue on overdue invoices, and retentions will be banned in construction.
The small business commissioner will also gain powers to fine companies that mistreat suppliers. King welcomed the reforms but stressed their success depends on precise regulation.
"If they are drafted well, they have a good chance of success. If they're drafted badly, then there's a car crash," he said. He added that moving from 30-day to 60-day terms could undermine progress if companies exploit the new maximum.
His scepticism is supported by current compliance data. Large businesses already have a statutory duty to report payment practices every six months, with non-compliance classified as a criminal offence.
Yet only around half of obligated companies report as required, thousands breach the rules regularly, and no criminal enforcement action has ever been taken. The lack of accountability underscores the risk facing the new legislation.
The economic stakes are substantial. Slow and late payment costs the economy an estimated £11 billion annually and forces viable businesses to close.
A further gap remains unaddressed. The reforms target large businesses, but a significant share of late payments occurs between small firms, most of which employ fewer than 250 staff and fall outside the rules.
Peers are preparing to strengthen the bill. Proposed amendments include additional resources for the commissioner's office, restrictions on delaying payments through ESG clauses, and a ban on cryptocurrency as a contractual payment term.
One proposed measure would impose a "cold shoulder" provision, excluding the worst offenders from government contracts and public work. Supporters argue this would create a powerful deterrent.
The Department for Business and Trade said large companies have failed to pay on time for years and that the new legislation will give the commissioner stronger investigative and fining powers over reporting failures.
