Government consults on late payment reform

The Department for Business and Trade (DBT) has launched a 12-week consultation on new legislation to tackle late payments, including proposed reforms to retention clauses in construction contracts.

The move is part of the Government’s wider ‘Backing your business: our plan for small and medium-sized business’, aimed at supporting small and medium-sized enterprises. According to DBT, late payments cost the UK economy £11 billion a year and contribute to the closure of 38 businesses every day.

Proposals include:

• A 60-day maximum payment term, removing the current option for businesses to agree longer terms
• A 30-day invoice verification window to reduce open-ended disputes
• Mandatory interest on late payments, ending the ability to negotiate lower rates
• New powers for the Small Business Commissioner to investigate and fine persistent late payers
• Spot-checks on large companies to ensure accurate payment reporting

In a move of particular relevance to the construction industry, the consultation proposes two options on retention reform:

1. Ban retention clauses in construction contracts altogether
2. Introduce requirements to protect withheld funds from insolvency, late or non-payment

The Government is seeking industry feedback on both approaches, which could significantly reshape commercial practices across the supply chain — especially for concrete subcontractors, precast producers, and SME suppliers vulnerable to withheld payments.

The consultation closes at 11:59pm on 23 October 2025.

More information and the full consultation document visit gov.uk/consultations.